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

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.

Cental govt accounts details  (Rs crore)
Budget estimates (BE) Actuals up to May % of actuals to BE
  2015-16 2016-17 2017-18 2015-16 2016-17 2017-18 2015-16 2016-17 2017-18
Revenue receipts 1141575 1377022 1515771 52361 65691 83012 4.6 4.8 5.5
Tax revenue (Net) 919842 1054101 1227014 19889 49690 67668 2.2 4.7 5.5
Non-tax revenue 221733 322921 288757 32472 16001 15344 14.6 5.0 5.3
Non-debt capital receipts 80253 67134 84432 1846 3369 2653 2.3 5.0 3.1
Recovery of loans 10753 10634 11932 238 390 398 2.2 3.7 3.3
Other receipts 69500 56500 72500 1608 2979 2255 2.3 5.3 3.1
Total receipts(1+4) 1221828 1444956 1600203 54207 69060 85665 4.4 4.8 5.4
Revenue expenditure 1536047 1731036 1837505 225088 264815 406490 14.7 15.3 22.1
of which interest payments 456145 492670 523078 48447 54714 69014 10.6 11.1 13.2
Capital expenditure 241430 247024 309230 37743 33231 52536 15.6 13.5 17
of which loans disbursed 24112 27878 39993 13859 16812 8574 57.5 60.3 21.4
Total expenditure 1777477 1978060 2146735 262831 298046 459026 14.8 15.1 21.4
Fiscal deficit 555649 533904 546532 208624 228986 373361 37.5 42.9 68.3
Revenue deficit 394472 354015 321734 172727 199124 323478 43.8 56.2 100.5
Primary deficit 99504 41234 23454 160177 174272 304347 161.0 422.6 1297.6
Source: Controller General of accounts

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)


Updated Date: Jul 20, 2017 16:54 PM

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