Budget 2022: Share of capital expenditure is the highest in 19 years

The last time such a large segment was allocated was in 2004-05

The government has allocated a greater share of the budget to capital expenditure than has been the case for nearly two decades.

Capital expenditure refers to money that is spent on building assets like roads, buildings or other such assets.  The majority of the budget goes in revenue expenditure which includes money spent on paying salaries and interest payments among others.

This year’s budget has allocated Rs 7.5 trillion to capital expenditure. This is 35.4 per cent higher than the previous year’s figure of Rs 5.5 trillion. It works out to 19.02 per cent of the total expenditure of Rs 39.45 trillion. The last time that the capital expenditure share touched a similar figure was when it came in at 19.32 per cent for the financial year 2004-05 (FY05).

The allocation is higher than some analyst estimates.

“We expect that government will continue to improve the quality of expenditure, and focus more on capital spending than revenue spending. We thus estimate a 15% jump in capex to Rs 6.4tn in FY23. The direction will be roads and railways as in the past,” said the 24th January Bank of Baroda India Economics report authored by chief economist Madan Sabnavis, and economists Dipanwita Mazumdar and Sonal Badhan.

The economic survey had mentioned that capital expenditure had earlier been affected by restrictions and labour availability. This changed as restrictions eased in the second half of the financial year 2020-21 (FY21). The momentum has continued in FY22, according to the survey.

“The capital expenditure shows an increasing trend over the first three quarters of 2021-22. During April- November 2021, the capital expenditure has grown by 13.5 per cent (YoY), with focus in infrastructure-intensive sectors like roads and highways, railways, and housing and urban affairs. This increase is particularly substantial given the high YoY growth in capital expenditure registered during the corresponding period of the previous year as well,” it said, noting that states had been incentivised to increase capital expenditure.

A January 18, 2022 India – Economics and Strategy report from global financial services group Morgan Stanley noted that state government’s capital expenditure showed a sharper recovery than the central government’s expenditure. Central government capital spending was growing at 26 per cent over the previous year, while it was 51.1 per cent for state governments.

“The central government’s efforts to nudge states through incentives has aided in contributing to the recovery in capex spending by states,” said the report authored by economists Upasana Chachra and Bani Gambhir; equity strategist Ridham Desai, strategist Min Dai, equity analyst Sheela Rathi.

The economic survey had added that the final figure is also likely to be aided by the fact that more spending typically takes place in the second half of the year.

“It is noteworthy to mention that there is a strong seasonality in capital expenditure by the Government. A large proportion of capital spending takes place in the second half of the year, which is not being captured with the available data,” it said.

The focus so far this year has been on roads, railways, housing and urban affairs, it said.