It'll pay to stay the course on capex
economic growth, and expectations are high that Nirmala Sitharaman will address the matter. Contributing to the loss of momentum has been a slowdown in government expenditure, with divergent trajectories under revenue and capital heads. Revenue expenditure is growing faster than budgeted, while capex is well below target. With tax revenue slowing down, any fiscal gains could come from lagging capex. Admittedly, gov capex has been on a tear since the pandemic, and there will be knock-on effects on growth if it cannot hold on to its share of GDP.
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The reasons for the capex slowdown, apart from the widely accepted notion that last year's general election had an impact, are varied. These range from absorption capacity to monitoring, delays in project announcements and slower equity infusion. Separately, subsidised loans to states, designed to fund their capex, are also displaying signs of fatigue. Each of these factors needs a customised approach to keep overall capex on track. Sectors require tailor-made solutions that increase their ability to soak up earmarked funds. Propping up state capex calls for a review of the approach that ties fund flows to a central vision.
The budget presents Sitharaman with an occasion to correct a course that is broadly headed in the right direction. GoI has regained fiscal balance during a growth spurt and has made the composition of its expenditure healthier through accelerated capex. These gains must be preserved not just through higher allocations
