FM’s budget numbers for capex don’t add up, Crisil confirms

Credit rating agency Crisil on Wednesday said the Union government’s 2022-23 budget for capital expenditure is “not as high as it sounds”.

Finance Minister Nirmala Sitharaman told Parliament on February 1 that the Centre’s budget for capex was ₹7.5 lakh crore – an increase of 35 per cent.

The agency said that if the ₹1 lakh crore of loans to states for capex is excluded from the headline figure, the actual spend in FY23 will go down to 2.58 per cent of the GDP, which is barely at par with the revised estimate of FY22.

The report also pointed out that the overall number showing a rise has been offset through a reduction in internal and extra budgetary resources (IEBR), which funds capex of central public sector enterprises (CPSEs).

IEBR has been budgeted at 1.82 per cent of the GDP for the next fiscal, much lower than the pre-pandemic average (fiscals 2018-20) of 3.33 per cent, it said, attributing the same to poor capex execution by CPSEs lately.

Also see: ‘Centre, states have to hold a serious dialogue on capital expenditure’

The overall central capex for FY22, which is the sum of effective budgetary capex and IEBR, will remain intact at 5.96 per cent of the GDP for the next fiscal, the same as pre-pandemic average between 2018-20.

Sitharaman was initially hailed for her budget speech mentioning an over 35 per cent jump in capex for FY23, to help revive growth. On February 2, however, Credit Suisse said that a “large part of capex growth [is] an interest free loan to states and off-budget spending brought in”.

On the revised estimates for FY22, showing a rise in capex to 2.6 per cent from the budget estimate of 2.39 per cent, the Crisil report explained that this is due to a one-time expenditure of ₹51,971 crore towards Air India’s liabilities.

Noting that the government has been able to fully spend its capex budget, the report said in the last two fiscal, a bulk of expenditure happened in the last quarter and made a plea for frontloading of the committed money to help the demand process.

The mix of the capex budgeted for FY23 favours employment, the report said, noting the focus on roads and highways and railways sectors. However, the commitment to defence, another jobs-intensive area, has softened a bit, it said.

The report also said that the states will have to “make haste” in utilising the space offered by the Union Budget by doubling down on their commitment and make full use of the increased capex loans.