FM is likely to announce major infrastructure boost in budget

Economists and experts have constantly advised the government to announce a major infrastructure boost in the budget by relaxing the fiscal deficit target, which was pegged at 3.5% of the GDP for the current fiscal.

New Delhi:In her bid to revive the country’s economy which is hit hard by the Covid-19 pandemic, finance minister Nirmala Sitharaman is likely to announce a significant increase in the infrastructure spending in the budget to be presented today that is expected to have a large multiplier effect on other sectors.

Economists and experts have constantly advised the government to announce a major infrastructure boost in the budget by relaxing the fiscal deficit target, which was pegged at 3.5% of the GDP for the current fiscal.

In her budget estimates for the current fiscal, finance minister had estimated a total budgetary expenditure of over Rs 30 lakh crore and over Rs 4 lakh crore, little over 13% of it, was to be spent as capital expenditure that goes into asset creation such as building highways, airports, seaports, railway lines, schools and hospital among other things.

The finance minister is expected to announce a major increase in capital expenditure for the next year’s budget which will be announced today.

However, in absence of a corresponding increase in the revenue collection this year, the finance minister is likely to announce a combination of measures, including a larger borrowing plan to arrange funds for infrastructure boost.

In the current fiscal, the government increased its borrowing by more than 50% of the budget estimate for the year, from Rs 7.8 lakh crores to over Rs 12 lakh crores.

Top economists contacted by ETV Bharat suggest that despite a significant increase in the government borrowings, the country’s debt level will still be within the sustainable level.

“Our debt-to-GDP ratio is far better than many advanced economies where the debt-to-GDP ratio has already crossed the mark of 100 per cent,” said Arvind Virmani, former chief economic advisor, in response to a question by ETV Bharat in a programme organised by policy think tank EGROW Foundation.

“Even if there is a significant increase in the borrowing, our debt will be within sustainable levels,” Virmani told ETV Bharat.

Noted economist Surjit Bhalla, a former member of Prime Minister’s Economic Advisory Council (PMEAC) says global financial institutions like the International Monetary Fund (IMF) are advising the countries to not worry about fiscal deficit rules.

“The IMF asked the governments not to worry about a rise in their fiscal deficit to support the economy,” Bhalla told the audience in response to ETV Bharat’s question.

Economists suggest the extra borrowing should be used for asset creation and not for revenue expenditure.

“Nobody is advising the finance minister for fiscal profligacy. The additional borrowing should be used in asset creation,” Dr Charan Singh, former executive director at the IMF and Chief Executive of EGROW Foundation told ETV Bharat.

Historically inadequate capital expenditure

According to the information given by finance minister Nirmala Sitharaman in this year's budget, the Central government's capital expenditure in FY 2018-19 was Rs 3 lakh crore, which was 13% of the total expenditure of Rs 23.15 lakh crore.

Similarly, the capital expenditure for FY 2019-20, was just 12.92% of the total budgeted expenditure as per the revised estimates for the year. According to the revised estimates, the capital expenditure was estimated at Rs 3.49 lakh crore of the total expenditure of nearly Rs 27 lakh crore in that year.

Finance minister Nirmala Sitharaman projected capital expenditure for this year to be little over Rs 4 lakh crore of the total budgeted expenditure of over Rs 30.42 lakh crore, which is just 13.21%.

However, the finance minister is expected to announce a significant increase in the capital expenditure to revive the GDP growth which is expected to contract by nearly 8% due to the outbreak of Covid-19 pandemic.

(Article by Krishnanand Tripathi)