One of the most appreciated features of the Union Budget 2021–22 is the improved focus on expenditure. The government has revised its capital expenditure estimates from Rs 3.4 lakh crore in FY20 to Rs 4.4 lakh crore in FY21. It has further expanded the budget estimates for FY22 to Rs 5.5 lakh crore, implying a massive growth of 65% YoY over two years.
However, after making necessary adjustments, few discrepancies have emerged on this account. A few points mentioned here reveals that fresh capital expenditure is not as significant. And, many of them are even carried forward from the last budget.
1) Extensive focus on loans and advances :
There are two components to government spending:
1) Capital outlays and
2) Loans and advances (L&A)
Capital outlays is the actual investment spending by the central government while in L&A, funds will be disbursed by banks and other financial institutions. In budget FY21, L&A portion is pegged much higher at 24% of capex as against the normal range of 7-9%. It implies that actual spending via capital outlays grew by just 6.7% in FY21. It was lower from 11% growth in FY20.
In a nutshell, most of the capital expenditures in FY21 were carried in form of loans through banks and financial institutions. In reality, the government's actual participation through capital outlays stands reduced.
2) The adjustments in FY22:
The budget has expanded the scope of capital expenses to Rs 5.5 lakh crore in FY22 from Rs 4.4 lakh crore in FY21. However, the adjustments in capital outlay and CPSEs will bring the investment expectation down drastically.
The government has budgeted for Rs 20,400 crore capital infusion in BSNL/MTNL for the 4G spectrum. However, this is not a fresh allocation. The fund was allotted in FY21 but it could not be utilized. Hence, it is pushed to FY22. Therefore, this amount should not be classified as fresh spending.
Apart from this, one adjustment is to be made in CPSEs’ capital outlays. In FY21, Food Corporation of India’s (FCI) capital outlays were pegged at Rs 1.15 lakh crore. FCI's budgetary estimate for FY22 is pegged at Rs 1.02 lakh crore. FCI's expenditures in the past have been on account of giving food subsidies. Considering the expense pattern to remain similar, budgetary allocation for FY22 should also be excluded from the government's capital expenditure plan.
After assessing the finer details and decoding the capital expenditure allocations, combined capital outlays are estimated to grow 6.6% in FY21, marginally lower than 7.2% in FY20.
For FY22, capital outlays are expected to grow 35% YoY. But, CPSEs’ investments are expected to decline by ~3%. It brings down the combined capex growth at 12.3% for that year. This implies the average capital expenditure growth of only ~9.5% for FY21 and FY22.