CENTRE SCALES BACK CAPEX AMID FEARS OF DEFICIT BLOWOUT

India has scaled back expenditure, including on productive assets that aid economic growth, as the government is confronted with the risk of its budget deficit blowing out.

Capital expenditure—the money spent on creating, maintaining, or improving fixed assets like roads and factories— stood at 40% of the budgeted amount in the six months to September, down from 55.5% in the year-ago period, data from the government’s Controller General of Accounts show. The overall spending during the period was 49% of the budget aim compared to 53% last year.

That’s despite Prime Minister Narendra Modi’s government outlining measures worth more than ₹21 lakh crore ($281 billion) to counter the economic and social fallout of the Covid-19 outbreak. A closer look at the numbers show the bulk of the spending was directed toward the poor and the farmers, with crucial sectors such as coal, power, shipping and steel receiving less than a third of their annual budget allocation.

“Capital expenditure is something the government shouldn’t neglect,” said Sabyasachi Kar, professor at the RBI chair at the National Institute of Public Finance and Policy in New Delhi. “If that is not happening then that is a problem for the economy.” Spending on capital assets has so far trailed the so-called revenue expenditure that includes interest payments and overheads such as salaries, the data released last week showed. Modi’s government placed spending curbs on some ministries from April through December to manage its cash flow.

The finance ministry on Wednesday said it has increased budget provisions toward fixed assets and infrastructure, including to sectors such as roads and defense, by ₹25,000 crore.

Economists surveyed by Bloomberg predict a blow out in the government’s fiscal gap to more than double the budgeted 3.5% of gross domestic product in the year to March. That slippage is mostly on account of falling revenues because of subdued economic activity than due to increased borrowing.

India needs to spend the budgeted amount for different ministries, “and that can provide a meaningful growth stimulus”, Citigroup Inc. economists Samiran Chakraborty and Baqar Zaidi wrote in a report to clients.

THE BULK OF GOVT SPENDING WAS DIRECTED TOWARD THE POOR AND THE FARMERS