Budget 2024: Modi govt falls short of Capex target

In recent budgets, the Modi government has consistently highlighted the importance of increasing capital expenditure (Capex) as a key driver of economic growth. But does the failure to meet its own set target reveal an underlying failure to fully present a detailed, comprehensive picture of its fiscal strategy, in order to cherry-pick highlights?

When it comes to differentiating between revenue and capital expenditure, Capex refers to investments made in productive assets like roads, schools, bridges and ports. An important finding highlights the benefits of increasing capital expenditure: for every Rs 100 invested, there is a significant Rs 250 boost to our GDP. On the other hand, revenue expenditure generates a return of less than Rs 100.

The interim budget, per an Indian Express analysis, highlights that the government's capex target of Rs 10 lakh crore fell short, reaching Rs 9.5 lakh crore based on revised estimates. This discrepancy is despite the ambitious announcement made in the 2023–24 budget. The fiscal implications are still significant, leading to a decrease in the fiscal deficit. Nevertheless, there are concerns about the potential impact on the overall economic growth trajectory.

The government has announced a significant allocation of Rs 1.3 trillion for 50-year loans to states in the upcoming fiscal year, aiming to recalibrate and strengthen capital investments. This strategic move seeks to empower states to enhance their own capital expenditure, in line with the government's vision of capital expenditure as the key driver of economic growth and employment opportunities.

The significance of finance minister Sitharaman's statement on the role of Capex as a driver of growth and jobs becomes apparent in the government's emphasis on the impressive increase in nominal Capex, which has risen from Rs 3.07 lakh crore in 2018–2019 to Rs 10 lakh crore in 2023–2024. The government's CAGR has been 26.6 per cent over the past five years.

However, experts emphasise the importance of examining the various elements of this nominal budgetary Capex, such as the inclusion of 'loans and advances' to state governments and other entities. "Although these loans may lead to recipients increasing their capital expenditure, they do not directly contribute to the capital expenditure of the Union government," explained Subhash Chandra Garg, a former Union finance secretary.

According to Garg, the failure to meet its own Capex target raises important concerns about the government's fiscal strategies and how they could affect the nation's long-term economic growth.

As the country grapples with these complexities, the effectiveness of capital expenditure in driving a strong and prosperous economy continues to be a key topic of conversation.