Infra spotlight: Little help from govt rejig of plan, non-plan expenditure

Despite wanting to, the government has managed to spend very little on capital account

In the din over demonetisation and how it has been treated in this Budget, is lost a major change, introduced from this year. For years, successive finance ministers have been criticised for not spending enough on capital account, when compared to revenue account. In other words, the government spends for itself, instead of for the economy. 
 
This year, the Narendra Modi government had decided to tackle the argument head on. It has written in a projected spend of Rs 3,09,801 crore on capital account or more generally as investment in 2017-18. It is Rs 2,79,847 crore for the Revised Estimate for the current financial year, thus showing a growth of 10.7 per cent. It has worked out the data by erasing the distinction between Plan and non-Plan expenditure to instead provide for revenue and capital expenditure. Despite the changes, the numbers are not substantially different as etched in the previous Budgets under the old definition. Even now at 14 per cent of the government’s total annual expenditure, it will be the same as the Revised Estimates for 2016-17.  
 

The data is tucked away in the Budget documents in the Fiscal Policy Framework, but it is extremely significant. The government has rarely managed to spend much on capital account despite what it would have wanted to. The reason is  the rigidness of the total expenditure bill, which is dominated by interest, subsidy defence and wages bill for government staff — it rarely has enough money to spend on capital investment. 
 
Commentators on the Indian government finance had pointed out that this happened because of the rigid rules that dominate plan spending. There were too many rules. One of the first decisions made by the Modi government in 2014 was to abolish the Planning Commission with its supposed overzealous monitoring of plan spending. 
 
Budget 2017-18 is the first year when the revamped expenditure of the central government will begin. Yet, as the numbers show, despite the changes made, there is not too much money freed up to be bracketed as capital expenditure. 
 

Data

Would the numbers from this year spur public investment? It is critical that it does. The non-plan expenditure CSO data shows the amount of investment overall has tapered off. The rate of gross fixed capital formation to GDP at current prices was 29.2 per cent in 2015-16 as compared to 30.3 per cent in 2014-15. This gets reflected in the weak offtake of credit from the banking sector, which has been below 10 per cent through most of this financial year. In addition, the consumption boost introduced by the seventh
 
Pay Commission in the current fiscal, by raising the salary of central government employees has begun to taper off. At this juncture, the only major push can come from public investment. 
 
It is this concern that makes the Centre keen to extract every drop from the investment purse. For instance, it notes, “in the context of fiscal transfers to states, even those meant for capital expenditure” needs to be recognised. Raising public investment is critical — only thar there is little money available to do it.

Changed priorities

Finance minister Arun Jaitley’s fourth Budget is interesting, as it makes clear that the government is moving towards integrated planning for the transport sector. He has made available Rs 64,900 crore, a jump of almost 12 per cent for the sector. He has also taken credit for a 140,000 km of road construction during the term of the current NDA government, which works out to a pace of almost 47,000 km every year. But most of the construction has been on the rural roads. While Road Transport, Highways and Shipping Minister Nitin Gadkari has set a target of constructing over 10,000 km of roads in the current fiscal, it is unlikely to happen. 
 
The key theme in the transport sector for Jaitley to show in the Budget was, of course, the Railways. The operating ratio for the Railways in the current fiscal is expected to deteriorate to 94.5 per cent from 90.5 per cent in the previous fiscal. The minister is cognisant of it. “It will be our constant endeavour to improve the ratio,” he said in his speech. 
 
But in a signal of changed priorities, the Railways under Jaitley’s stewardship did not come out with a list of unproductive investment expenditure or a list of railway lines to add to their woes. Instead, the minister has rightly decided to take a clutch of rail public sector undertaking to the stock market to raise revenue to increase the massive level of financing needed to underwrite its humungous investment requirements. In this connection, his plan to come up with a Metro Rail Act as part of a Metro Rail Policy is a well-thought initiative to promote investment in this arm of urban transport. The reasons why the Railways needed to come under the rubric of Union Budget has become clear.