Economic Survey: After slowing down in H1, capex picks up in Dec quarter

Stimulus measures announced so far during FY 22 include liquidity enhancing and investment boosting measures such as PLI, credit guarantee schemes and export boosting step, survey says

Capital expenditure by the government has revived in the December quarter of the ongoing financial year after witnessing a slowdown in the first half of the current financial year due to restrictions imposed by the government to stop the spread of Covid-19 pandemic, the Economic Survey said.

“On the fiscal front, capital expenditure was restrained during Q1 (June quarter) and Q2 (September quarter) of 2020-21 owing to movement restrictions in containment zones, and unavailability of contractors/workers to carry out capital works. However, with the easing of movement and health-related restrictions, capital spending was pushed up in Q3 (December quarter) of 2020-21,” the Survey said.

The stimulus measures announced so far during the year 2021-22 include liquidity enhancing and investment boosting measures such as the Production Linked Incentives scheme, credit guarantee schemes and export boosting initiatives helped to increase capital expenditure, the survey said.

The Survey said last year’s budget had not only enhanced the expenditure estimates but had also directed them towards more productive capital expenditure. “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,” the survey said. This increase is particularly substantial given the high YoY (year-on-year) growth in capital expenditure registered during the corresponding period of the previous year as well. In addition, the Centre has also put in place several incentives to boost the capital expenditure by the States, the report added.

The Government budgeted for a 34.5 per cent growth in capital expenditure over 2020-21 BE (Budget estimates) – with emphasis on railways, roads, urban transport, power, telecom, textiles and affordable housing amid continued focus on the National Infrastructure Pipeline. The National Infrastructure Pipeline covering 6,835 projects was expanded to 7,400 projects in Budget 2021-22.

In order to unlock the domestic manufacturing potential across sectors, such as renewable energy, heavy industry, agriculture, automotive and textiles, Budget 2021-22 launched PLI schemes for 13 sectors, with an outlay of Rs 1.97 trillion for a period of 5 years starting from 2021-22. All these initiatives are expected to collectively generate employment and boost output in the medium to long term through multiplier-effects, the survey said.

The emphasis on capital expenditure was envisaged to continue in 2021-22 to reach a budget estimate of Rs 5.54 trillion i.e. 2.5 per cent of GDP. This translates into a growth of 34.5 per cent and 30.5 per cent over 2020-21 and 2020-21, respectively. As a proportion of total expenditure, capital expenditure has been estimated to increase from 12.1 per cent in 2020-21 to 15.9 per cent in 2021-22 BE. "'The higher capital expenditure with a focus on infrastructure spending in 2021-22 will have a multiplier effect on the ongoing economic recovery," the survey said.

On the slowing capex by the PSUs, the survey said in fiscal 2021-22 till October 31, the Central public sector enterprises incurred capital expenditure of Rs 1.06 trillion as against the annual target of Rs. 2.69 trillion. During 2020-21, a total expenditure of Rs. 2.04 trillion was incurred as capex by the PSUs as against a projected expenditure of Rs 2.2 trillion.  The report did not talk about capex by private sector companies which has slowed down considerably in the past two years.