Booster shot for economy: Govt increases capital expenditure to Rs 7.5 lakh crore

Capital expenditure is distinct from other routine expenditures of the government as the money is spent on the creation of infrastructure such as roads, ports, airports, hospitals, and schools among other things which push the demand for goods and services and lead to employment generation with a multiplier effect.

New Delhi: In absence of private investment to support the revival of the economy, Prime Minister Narendra Modi’s government has decided to massively increase the capital expenditure for the next fiscal, which is unprecedented in modern history. Finance Minister Nirmala Sitharaman has allocated more than Rs 7.5 lakh crore as capital expenditure for the next financial year beginning from April 1, which is nearly one fifth of the total government expenditure of more than Rs 39.44 lakh crore for the year.

Capital expenditure is distinct from other routine expenditures of the government as the money is spent on the creation of infrastructure such as roads, ports, airports, hospitals, and schools among other things which push the demand for goods and services and lead to employment generation with a multiplier effect.

In order to put things in perspective, the capital expenditure for FY 2019-20 was over Rs 3.35 lakh crore. The next year, in FY 2020-21, the capital expenditure rose by more than 27% as the actual capital expenditure surpassed Rs 4.26 lakh crore, an increase of Rs 91,000 crore in a single year.

It was at a time when the country was under a complete lockdown for three months, from April to June 2020, and under partial lockdown for the next three months that was imposed by Prime Minister Narendra Modi to slow down the community spread of the deadly virus.

However, the government’s open-hearted approach to capital expenditure did not stop with the first Covid year which caused a decline of 6.6% in the country’s economy due to the Covid induced restrictions and lockdowns.

For the current financial year, the finance minister had allocated over Rs 5.54 lakh crore for capital expenditure, which was an increase of Rs 1.28 lakh crore (over 30 per cent) in a single year. This was for the first time in the history of the country when the Union government’s capital budget was estimated to surpass the figure of Rs 5 lakh crore in a financial year.

What is even more surprising is that despite a deadly second Covid wave, the government would be able to spend over Rs 6 lakh crore on capital expenditure in the current financial year, an increase of nearly Rs 50,000 crore from the budget estimate and a record in itself as it will top Rs 6 lakh crore in a single year.

It is for the first time in a financial year when the Union government’s capital expenditure breaks two records, the budget allocation of over Rs 5 lakh crore for FY 2021-22 that is likely to make another record of surpassing the figure of Rs 6 lakh crore as per the revised estimates presented by the finance minister today.

In order to ensure proper utilization of this massive budget allocation for the infrastructure sector, finance minister Nirmala Sitharaman personally conducted several meetings with different ministries, departments, central public sector undertakings and also with state governments to encourage them to spend more on the capital side.

Perhaps, it is the result of this push that gave confidence to the finance minister to allocate a record Rs 7.5 lakh crore for capital expenditure for the next fiscal. It is an increase of over Rs 4.15 lakh crore or close to 124% jump in the capital expenditure in just three years' time.