The central government should increase its capital expenditure by at least 20 percent to Rs 12 lakh crore for the next financial year, the Confederation of Indian Industry (CII) said in its summary of recommendation for the upcoming Interim Budget.
The Centre has spent heavily on capital expenditure in recent years to drive growth and crowd in the private sector. According to media reports, spending on capex may witness an increase of 15-20 percent in 2024-25. While, the government had earmarked Rs 7.5 lakh crore for capital expenditure in FY23, it was increased to Rs 10 lakh crore for FY24.
As per latest available data, in November 2023, the government's total expenditure was down 14 percent YoY at Rs 2.58 lakh crore, with capital expenditure up a mere 2 percent at Rs 38,721 crore. With two-thirds of 2023-24 over, the Centre has now fallen behind the run-rate needed to meet its record full-year capex target of Rs 10 lakh crore, with the figure for April-November standing at Rs 5.86 lakh crore, or 58.5 percent of the target.
Support to states
The apex industry body also suggested expanding the central support to state capex, in the form of interest-free, 50-year loans by about Rs 30,000 crore to Rs 1.6 lakh crore. "Some of the support could be linked to undertaking of reforms by states," it added.
For the current financial year, the Centre allocated Rs 1.3 lakh crore to states in the form of 50-year, interest-free loans under the Scheme for Special Assistance for Capital Investment. Out of this, Rs 1 lakh crore is allocated to states in proportion to their share of central taxes and duties as per the award of the 15th Finance Commission. The remaining amount is linked to reforms including scrapping of old state government vehicles and ambulances, waiver of liabilities on old vehicles, reforms in urban planning, among others.
CII recommended that while the Centre should maintain the fiscal deficit target of 5.9 percent of GDP for FY24, the gap should be reduced to around 5.4 percent for the next financial year.
The Budget for 2024-25, which will be presented by Finance Minister Nirmala Sitharaman on February 1, 2024, is expected to announced a sizable reduction in the fiscal deficit for next year to ensure that the target of 4.5 percent of GDP for 2025-26 is met.
Other Suggestions
The apex industry body also called for signalling a move to a simpler, three-rate structured Goods and Services Tax (GST) as well as bringing in products (petroleum products, electricity, and real estate) under the GST regime.
CII suggested setting up an independent Ministry for Investment, as a single point of contact for facilitating private investment, both domestic and foreign, as well as for Indian investors to invest abroad.
Given that Food and Fertiliser subsidy accounts for more than 90 percent of the Centre's total subsidy bill, CII suggested revising the beneficiary criteria for food subsidy based on updated datasets.
Batting for an increase in allocation for Pradhan Mantri Awas Yojna, CII recommended extending the interest subvention scheme available on low-cost housing to cover total housing cost of up to Rs 35 lakh, instead of Rs 25 lakh at present.
The industry body batted for the creation of a National Economic Security Board under the National Security Council to monitor risks and suggest measures around global supply chain disruptions, to reduce overdependency on large import sources, and to work on cybersecurity issues that may threaten India’s digital financial infrastructure, among others.
To tackle the problem around employment, CII suggested initiating pilot editions of Urban Employment Guarantee Program with a focus on high unemployment areas. The industry body also recommended expanding the Production Linked Incentive (PLI) scheme to labour intensive sectors, such as apparel, toys, and footwear to help generate jobs and reduce import dependence.
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