Capex spend remains stagnant as % of GDP

Weak corporate performance, mounting bad debts had dried up private investment in infra

Finance Minister Arun Jaitley announced in his 2017-18 Budget speech last week a 25 per cent increase in the government’s capital expenditure over the 2016-17 Budget Estimates and nearly 11 per cent over the Revised Estimates (RE).

The government’s budgeted capital expenditure for 2017-18 is ~3.10 lakh crore, the highest for any financial year. However, as a percentage of the gross domestic product (GDP) at current prices, capital expenditure will remain flat in comparison to the two preceding years.

For 2017-18, the budgeted capital expenditure is 1.84 per cent of the projected GDP of ~168.47 lakh crore. The actual capital expenditure in 2015-16 was 1.85 per cent of the nominal GDP and the revised capital expenditure in 2016-17 is 1.86 per cent of the nominal GDP.

The increased public spending in infrastructure is part of the government’s efforts to boost economic growth amid a global slowdown and in the aftermath of demonetisation.

Including funds, the railways will raise from the markets, infrastructure spending by central government departments and stateowned companies has been pegged at over ~3.9 lakh crore in 2017-18.

“It is the most a government could do while following the fiscal road map. One-third of the capital spending is for defence, that bit will most likely go to foreign vendors rather than build infrastructure here,” said Madan Sabnavis, chief economist with CARE Ratings.

Private investment in infrastructure had dried up because of weak corporate performance and mounting bad debts, he added, and infrastructure spending would be 22.5 per cent of the GDP for a few years.

“If the Centre was looking to spend more, you would have seen a fiscal deficit target of 3.5 per cent instead of 3.2 per cent,” Sabnavis said. The budgeted fiscal deficit for 2017-18 is 3.2 per cent of the GDP.

Jaitley had first announced the Centre’s commitment to boost public spending in infrastructure in the 2015-16 Budget. The Centre’s capital expenditure crossed ~2 lakh crore for the first time that year and was the steepest year-on-year jump, almost 29 per cent higher than in 2014-15. The push continued in 2016-17, with RE of capital expenditure 11 per cent higher than the actual spending of the previous year.

“It is not that the private sector is refusing to invest. It cannot invest. As far as the government is concerned, there is not much more it could have done. But it has not been able to get private investment going,” said Manish Aggarwal, head of corporate infrastructure and financing at KPMG in India.