The budget is likely to further strengthen the government’s capital expenditure plan announced last year to support growth through greater spending and closer engagement with states, responding to the need for stimulus following the third Covid wave.
The bolstered plan is likely to focus on convergence in capex by the Centre and the states as well as various ministries and departments, apart from a higher allocation to the capital budget, government sources told ET.
The states could be offered a special financing window to support their capex. Options include schemes similar to an interest-free, 50-year loan programme or additional borrowing tied to capital expenditure, said an official. A final call on the proposals will be taken closer to the budget, the official said.
Finance minister Nirmala Sitharaman had raised capital expenditure to ₹5.54 lakh crore in the last budget, a jump of 26% over the revised estimate of ₹4.39 lakh crore for FY21.
A hike of 20-25% is expected for FY23, another official said.
The states had in a meeting with the Centre asked for support to lift growth. They were allowed to borrow additional sums from the market on meeting capex targets last year and many states had used the window.
‘Prioritising Capex Crucial’
In the absence of significant private capex, government capital spending has been providing support to the economy. Gross fixed capital formation is projected to grow 15% in FY22 compared with a 9.2% increase in the gross domestic product (GDP), according to the first advance estimates released last week.
Experts also supported a capex push through slower fiscal consolidation.
The budget, expected to be announced on February 1, should target a limited reduction in the fiscal deficit to about 6% of GDP in FY23 compared with 6.8% budgeted for FY22, said EY India chief policy advisor DK Srivastava. Most of the funds thus freed up should be spent on augmenting capital expenditure.
“Prioritising capital expenditure by the central government is crucial for cementing the growth revival as state governments are likely to cut capex in lieu of losing out on goods and services tax (GST) compensation funds, amid weak private investment,” said Rahul Bajoria of Barclays in a note.
ICRA chief economist Aditi Nayar said capex that can be realistically absorbed in the year must be ring-fenced in the FY23 budget to ensure it is spent.
State Bank of India chief economist Soumya Kanti Ghosh suggested that infrastructure projects should be incentivised on the lines of the production-linked incentive (PLI) scheme to persuade companies to venture into infrastructure projects. A differential tax regime for newly incorporated companies undertaking greenfield projects should be considered, he said.
Major sectors including textiles, food processing, chemicals and power have expressed optimism in the business environment and favour capacity expansion in the next two-three years, an SBI Research note said Wednesday, citing a survey. It said 70% of the respondents had shown optimism.