Although India’s budgetary allocation for capital expenditure (capex) has historically been meagre, trends in recent years, especially since the economic downturn caused by the Covid-19 pandemic, indicate a change.
The Centre’s budgetary estimate on capex for the current financial year was Rs 7.5 lakh crore. This is 24 percent more than what was spent the year before, and more than double the amount spent on capex in FY20.
The allocation to capex last year saw a 41 percent on-year increase, the biggest jump since the 2014-15 Budget. During the past nine years, only FY18 saw a contraction in capex. So, the government is clearly looking to increase the growth multiplier of the economy. But is the government carving out more from its planned spending towards capex? It is.
As a percentage of total expenditure, capex stood at 19.02 percent in the last Budget, a steep increase from 15.99 percent in FY22, which was in itself a significant increase than the year before. After years of considerably slow growth in the share of capex in total expenditure, it seems to have picked up pace in the last two Budgets.
Total expenditure has also been on the rise over the years. India’s overall expenditure in FY23, according to budgetary estimates, stood at Rs 39.44 lakh crore. This is an increase of 4.63 percent from the FY22 figure.
Finally, is capex keeping pace with the economy or are the percentages distortionary?
Capex as percentage of the gross domestic product (GDP) stood at 2.91 percent in FY23, according to budgetary estimates. This is the highest figure in the last nine years. As the above chart shows, in much of the years prior to the pandemic capex was languishing below 2 percent of GDP.
According to data from the Controller General of Accounts, the government seems to be on track to meet its capex goal for this financial year. As of November, as much as 59.6 percent of the total budgetary estimate for capex in FY23 was utilised. The utilisation rate in capex seems to have increased once again after FY22 recorded only 49.4 percent during the corresponding period, the lowest rate since FY13.