As subsidy spending rises, finance ministry sees no compromise on capex

Officials say no rejig of expenditure at a time when reviving growth is priority

Though the 2022-23 fiscal year has just begun, the Centre’s welfare and subsidy expenditure is already expected to overshoot targets.

Even then, there will be no rejig of expenditure and no compromise on capital expenditure, said finance ministry officials.

At a time when reviving growth is the government’s top priority, capex is more important than fiscal deficit for the finance ministry.

“Usually, fiscal deficit is the priority. This time, the message from the leadership is that capital expenditure should be the priority. There will be absolutely no compromise on welfare and scheme spending and on capex,” a senior government official told Business Standard.

Fiscal deficit or budget deficit is the difference between the Centre or a state’s expenditure and revenues when the former is higher.

It is measured as a percentage of nominal gross domestic product (GDP) and is the most important indicator of a government’s financial health along with debt-to-GDP ratio.

Finance minister Nirmala Sitharaman has pegged the Centre’s capex for FY23 at Rs 7.5 trillion, as public investment in infrastructure remains the plank on which the Modi government is betting on India’s economic revival.

The figure includes Rs 1 trillion in long-term, interest free loans to states for their capex needs.

The foundation of this capex push is the Rs 111-trillion National Infrastructure Pipeline.

As reported earlier, the Centre’s fertiliser subsidy outlay for the year could be as high as Rs 2.10-2.30 trillion. This is on the back of sustained high commodity and oil prices due to the war in Europe.

This will be the highest ever spending on fertiliser subsidy in a year and compares with FY23’s Budget estimate (BE) of Rs 1.05 trillion.

Additionally, the Modi government’s decision to extend the PM Garib Kalyan Anna Yojana (PMGKAY) till September will increase the food subsidy outlay for FY23 to Rs 2.86 trillion. This is in contrast to the BE of Rs 2.06 trillion.

Provided all other assumptions in the 2022 Union Budget remain the same, calculations show that the Rs 80,000-crore outlay to extend PMGKAY will take the FY23 fiscal deficit BE to Rs 17.4 trillion. This will be from Rs 16.6 trillion, or 6.74 per cent of GDP from BE of 6.4 per cent.

Even a Rs 1 trillion increase in fertiliser subsidy added on to the increase in food subsidy would take FY23’s fiscal deficit as a percentage of GDP to 7.13 per cent.

“We are expecting another good year for tax revenues.

If there are additional sums required in welfare schemes or subsidy spending, that will be provided in the upcoming supplementary demand for grants. Meanwhile, our capex programme will continue unabated,” said a second official.

The Centre’s main concern now is that as the economy recovers from the three waves of Covid, there are fresh headwinds.

These are in the form of high global commodity prices and disruption in supply chains due to Russia’s invasion of Ukraine.

As the Ukraine war enters its third month, heads of industry bodies — Assocham and Confederation of Indian Industry (CII) — said that companies will not be able to pass on all their input cost increases to customers. So, their margins could get hurt.

This could also mean that the revival in private sector capex could be delayed even further. So, public sector investment assumes more importance.

CII president TV Narendran said in traditional infrastructure sectors like roads, railways, ports and aviation, among others, the Centre’s capex push may continue to drive activity.