Road and Railway shared a huge chunk to push the government’s capital expenditure growth by over 57 per cent during the first three months of the current fiscal. Experts are hopeful that the government will not compromise with capital expenditure, even loss of revenue on fuel duty cut. The higher capital expenditure by the government is also boosting credit flow, which is another positive for the economy.

The government has budgeted around ₹7.50-lakh crore of capital expenditure during the current fiscal, out of which it spent over ₹1.75-lakh crore in the first three months. This is over 23 per cent of the budget estimate against 20 per cent during the corresponding period of last fiscal.

Key infra sectors

Among key infrastructure sectors, capital expenditure was over ₹80,000 crore in the road sector, showing a growth of 72 per cent. Similarly, during this period, capital expenditure on railwayssurged by over 80 per cent to over ₹46,000 crore.

The capital outlay on defence services also saw good progress with 20 per cent growth, and it touched around ₹24,800 crore. However, an important sector for job creation impacting on various economic activities, housing, saw a decline in capital expenditure.

Rajani Sinha, Chief Economist, with CARE says the Centre’s capex has recorded a notable jump of 57 per cent in the April-June quarter likely to have a multiplier effect on the economy. The Centre’s push on capex is much required at this point when the private sector has been slow in its capex plan.

“Even with the additional subsidy announced for FY23 and the revenue lost due to fuel excise duty cuts, we do not see the government compromising on the capex expenditure in the coming quarters. It will be very critical for the States also to utilise the interest-free loan from the Centre for bolstering their capex plans,” she said.

Sector-wise split of the govt’s capex
2021-222022-23 %
Total capital expenditure (₹) 1,11,495.72 1,75,063.8657.01
Road46,894.13 80,716.4572.12
Railway25,598.35 46,167.06 80.35
Housing & urban affairs 6,124.60 3,095.69(-) 49.45
Defence (civil) 1,182.181,091.26(-) 7.69
Capital outlay on defence services20,661.62 24,799.67 20.02
Transfer to States 1,785.90 2,468.19 38.20
‘Wait-and-watch mode’

Sunil Kumar Sinha, Principal Economist, India Ratings and Research (Ind Ra) said the sustained double-digit growth in capex will help the economy when private investment is in wait-and-watch mode due to the monetary tightening across the globe and the uncertainty created by the Russia-Ukraine conflict.

In fact, the impact of government capex is reflected in the double-digit y-o-y growth of various infrastructure sectors like steel and cement in Q1FY23.

“For a strong and durable economic recovery, it is pertinent that the Union government sustains its capex in the remaining months of FY23. This is expected to nudge the States (which account for over three-fifths of the general government capex) as well to chip in and front load their capex targets for FY23,” he said.

A report by the Economic Research Department of the State Bank of India and authored by Bank’s Group Chief Economic Advisor, Soumya Kanti Ghosh said that in FY23, credit growth has gained further traction over FY22 and has recorded a three-year high growth of 14 per cent (y-o-y) as on July 15, 2022 (6.5 per cent last year).

The incremental growth (YTD) in credit is ₹3.8-lakh crore (3.3 per cent) to date (de-growth of ₹0.7-lakh crore last year or 0.6 per cent). “With capacity utilisation nearing 75 per cent, investment activity is expected to strengthen further, driven by rising capacity utilisation, the government’s capex push and deleveraged corporate balance sheets,” it said.