Budget advancement has boosted govt capex by 58% but effect stays subdued on weak private investment

Did the advancing of the Union Budget to 1 February help in boosting the spending as was expected?

Prime Minister Narendra Modi at a recent all-party meeting claimed it has.

"A major impact of advancing the budgetary process by a month has been that the funds allotted to several departments for various schemes reached before the monsoon season," he said.

Representational image. Reuters

In the previous years, this used to take two-three months and implementation of the schemes got delayed due to the rains. This year, however, since the budget was advanced and the Finance Bill got the final approval from the president on 31 March 2017, the funds reached the departments before the rains. This is the reason the prime minister claimed so.

A check with the actual numbers show (see the table below), the trend is indeed encouraging.

As per the numbers, during April and May this year, the government's capital expenditure stood at Rs 52,536 crore. This is 58 percent higher than the spending that happened during the same period in 2016-17. In comparison, April-May of 2016-17 had witnessed an on-year decline of 12 percent in these numbers.

Further, the total expenditure of the government has gone up by 54 percent over the last year while the corresponding growth the year ago was just 13.4 percent.

As a percent of total Budget Estimates, this year's capital expenditure stands at 17 percent. This is higher than the corresponding figure in the previous two years, when the numbers stood at 13.5 percent and 15.6 percent.

According to DK Srivastava of Ernst & Young says the advancement of the budget has indeed been useful.

"The increase in capital expenditure has clearly happened," he says. However, despite this, there is no improvement on the ground.

"We do see around us that a lot road sector activities are going on. There is obviously an acceleration in the infrastructure sector in the initial months. The capital expenditure takes a little time before it generates certain multiplier effects. Such effects would be generated, because the government is creating demand especially in the construction sector," he said.

However, he said after the initial surge, the monsoon will result in a slowdown from July. A pickup will happen only after the September.

However, he also pointed out that the advancement in budget has happened at a time when the private demand in general is weak and therefore the results are still subdued.

In short, unless the corporates get the confidence to invest more, do not expect a major revival on the ground. Even the government's advancement of the budget is not going to be of big help.

(With inputs from Rajesh Pandathil)