Buoyed by healthy revenue collections, the Narendra Modi government moved to revive the investment cycle through public spending. The Centre's capital expenditure in the first half of the current financial year is all set to rise as the figures for the first two months indicate.

According to the latest figures from the Controller General of Accounts (CGA), the Plan expenditure during April-May of the current fiscal reached 13 per cent of the Budget estimate against 10 per cent during 2014-15. Plan expenditure in April stood at 7.6 per cent of the Budget estimate against 4 per cent during April 2014. Higher Plan expenditure means rising public investment in developmental projects. This is expected to motivate private investors to put in more money.

Fiscal deficit down Even with the government frontloading the development expenditure, the fiscal deficit was lower than the previous year levels, thanks mainly to a dip in the non-Plan expenditure. Comprising subsidy, salary and recurring spends, non-Plan expenditure was 15.3 per cent of the Budget estimate during April-May against 18.3 per cent in the corresponding previous period. Thus, the overall fiscal deficit dropped to 37.5 per cent of the Budget estimate against 45.6 per cent during the previous fiscal.

On the revenue side, direct tax collection (personal income, corporate and securities transaction taxes) were a bit lower, but indirect taxes (customs, central excise duties and service tax) recorded an over 30 per cent jump each in two months. Overall, tax collections grew 12.7 per cent to ₹95,332 crore. With the manufacturing activity, bouncing back, the government expects the tax collection to grow at a faster rate.

The tight leash on the fiscal deficit has raised hopes of another rate cut. The Reserve Bank of India has already cut the repo rate by 75 basis points since January and indicated that a further reduction will depend on various factors, including fiscal measures by the government.

Aditi Nayar, Senior Economist with ICRA, said the combination of higher receipts and lower revenue expenditure has reined in the fiscal deficit in April-May 2015. Moreover, “the quality of expenditure has recorded a small improvement, owing to a decline in the fuel subsidy and interest outgo.

“However, growth of capital expenditure in the two months ending May 2015 has subsided to a mild 3 per cent,” she said.

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