Focus on capital expenditure will be vital for growth, says Economic Survey

The Economic Survey 2022 states that the targeted focus on capital expenditure, with its resulting multiplier effects, will be vital in sustaining economic growth.

There are strong indications that the Union Budget 2022-23 will continue with higher capital expenditure allocation to support the nascent economic recovery.

The capital expenditure was pegged at Rs 5.54 lakh crore in 2021-22 as against the revised figure of Rs 4.39 lakh crore budgeted for 2020-21. In the last two pandemic years, there has been a greater focus of capex on railways, roads, urban transport, power, telecom, textiles, and affordable housing amid continued focus on the National Infrastructure Pipeline.

The experts are already suggesting a re-distribution of capital expenditure to sectors that would support the semi-urban and rural areas where people are most impacted by the pandemic.

The advance estimates suggest that the Indian economy is expected to witness a real GDP expansion of 9.2 per cent in 2021-22 after contracting in 2020-21. However, the IMF had already cut India's GDP forecast from 9.5 per cent to 9 per cent in the current year due to the third covid wave. There are also risk factors like oil price rise, inflationary pressure and higher interest rates that have the potential to derail economic growth.

The GDP forecast for 2022-23 has been pegged at around 8-8.5 per cent. 

According to the survey, the Budget 2021-22 had not only enhanced the expenditure estimates but also directed them towards more productive capital expenditure. During April- November 2021, the capital expenditure has grown by 13.5 per cent year on year with a focus on infrastructure-intensive sectors like roads and highways, railways, and housing and urban affairs.

In addition, the Centre has also put in place several incentives to boost the capital expenditure by the States.

Jaideep Arora, CEO, Sharekhan by BNP Paribas says, "Notwithstanding political compulsions and the need for fiscal tightening, the government is likely to maintain a pro-growth stance by substantial increasing capital expenditure allocation to around Rs 6.5 lakh crore versus Rs. 5.54 lakh crore in 2021-22 and almost double that Rs.3.35 lakh crore in 2019-20. The markets would also keenly eye allocations to the production-linked incentive (PLI) scheme and target set for the National Asset Monetisation Plan."

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