Budget 2024-25: Centre’s capex spree narrows the gap between fiscal deficit, capital expenditure

The Interim Budget indicates that the Central government is strategically aligning effective capital expenditure with overall borrowings. This approach reflects a commitment to managing spending in a manner that corresponds to the country's borrowing activities, writes ETV Bharat's Krishnanand.

New Delhi: Finance Minister Nirmala Sitharaman’s interim budget for the next year stood out for two crucial numbers, the government’s decision to increase the effective capital expenditure to a record Rs 15 lakh crore and yet at the same time follow the path of fiscal consolidation by reducing the amount of loans taken by it in a year.

In other words, the government will spend more money on creating capital assets such as constructing more roads and highways, laying more railway lines and building more airports and seaports that are necessary for maintaining the momentum for faster economic growth, but at the same time, it is not increasing its borrowings as it is following the path of fiscal prudence by reducing the number of loans it takes in a year to meet its expenditures.

This budget also shows that the government is moving in the direction of aligning the effective capital expenditure with the overall borrowings of the Central government. For example, the difference between the fiscal deficit for the next financial year, which has been estimated at over Rs 16.85 lakh crore and the effective capital expenditure has narrowed down to less than Rs 2 lakh crore. The fiscal deficit reflects the overall borrowing requirement of the Central government in a year. It means that the effective capital expenditure in the next year will be around 90 per cent of the total borrowing of the Centre.

Capex exceeds Rs 11 lakh crore

In the budget, the Finance Minister has allocated a record Rs 11.11 lakh crore for capital expenditure while the grants-in-aid for the creation of capital accounts have been estimated at over Rs 3.85 lakh crore, taking the effective capital expenditure to a record Rs 15 lakh crore.

In the last five years, the effective capital expenditure has tripled, from Rs 5.2 lakh crore in FY 2019-20 to Rs 15 lakh crore in FY 2024-25. In 2019-20, the Centre’s expenditure on capital account was just Rs 3.4 lakh crore while Rs 1.9 lakh crore was given as grants-in-aid for the creation of capital assets, taking the effective capital expenditure to Rs 5.2 lakh crore.

Capex push continued despite Covid

Despite the outbreak of the Covid-19 global pandemic and subsequent lockdowns, the effective capital expenditure increased to Rs 6.4 lakh crore in FY 2020-21. The government’s capital expenditure push gained further momentum in FY 2021-22 despite a deadly second Covid wave, which was triggered by the Delta variant of the SarS-CoV-19 virus, which hit the country in April-May 2021. The effective capital expenditure hit a record Rs 8.4 lakh crore in that year.

The capital expenditure push continued in the next year as for the first time it crossed the mark of Rs 10 lakh crore in FY 2022-23 for the first time when the effective capital expenditure was Rs 10.5 lakh crore (Rs 7.4 lakh crore capital expenditure and Rs 3.1 lakh crore as grants-in-aid for the capital creation).

As per the revised estimates, the effective capital expenditure in the current financial year is expected to be Rs 12.7 lakh crore, with the capital expenditure alone nearing Rs 10 lakh crore (capital expenditure of Rs 9.5 lakh crore and grants in aid for the creation of capital assets at Rs 3.2 lakh crore).