 "Infrastructure")
The Prime Minister Narendra Modi-led government at the Centre is planning a third straight year of massive capital spending in 2017-18, as private sector investment continues to be muted.
Stressed assets and weak balance sheets have inhibited private investors in the sector.
For those drawing up the annual Budget for 2017-18, the biggest challenge will be balancing the burden of enhanced public spending and yet keeping the fiscal deficit at three per cent of the gross domestic product (GDP), according to the existing road map, said a senior officer to Business Standard.
While pre-Budget discussions are still going on and a decision on public spending outlay will be taken closer to the Budget date, sources said the budgeted capital expenditure for next year could cross Rs 2.6 lakh crore, with a nominal six to seven per cent year-on-year increase. That would be the highest ever for any given year.
At a time when private sector balance sheets are stretched and banks are burdened with non-performing assets (NPAs), Finance Minister Arun Jaitley had, in his 2015-16 Budget speech, said the Centre’s commitment to boost public spending in infrastructure was an impetus for growth.
That year, Jaitley had budgeted Rs 2.41 lakh crore in total capital expenditure, about 23 per cent higher than the 2014-15 actual figures of about Rs 1.97 lakh crore. That was the steepest jump in capital spending in at least one-and-a-half decades.
Policymakers had repeatedly said then the Centre would need to sustain high capital spending for eight quarters at most to act as a stimulus for private sector investment to pick up. The Centre could then ease up, keeping in mind its fiscal constraints.
Six of those eight quarters have come and gone, and officials ruefully admitted that India Inc has not pulled its weight when it comes to spending on infrastructure.
“Look at where private sector investments are. The non-performing asset situation has not improved and there is still a long way to go,” said an official involved in the Budget deliberations.
“We may have to continue spending at past levels to boost GDP growth,” the person said.
The total stressed advances, which includes gross NPAs and restructured advances, as a percentage of the loan book for all commercial banks operating in India, at the end of June quarter, was 12 per cent, up from 11.4 per cent at the end of March quarter.
For state-owned banks, the figure stands at 15.4 per cent at June end, up from 14.4 per cent at March end. Total gross NPAs for all listed banks have crossed Rs 6 lakh crore as of June end.
Jaitley has continued the Modi government’s public spending push in 2016-17 as well.
Budgeted estimate for the year was Rs 2.47 lakh crore, four per cent higher than the 2015-16 Revised Estimates. Just the combined outlay on roads and railways was planned at Rs 2.18 lakh crore. This was in spite of a very ambitious fiscal deficit target of 3.5 per cent of GDP in the backdrop of a rural sector push and outlay on the Seventh Pay Commission.
For April-September 2016-17, capital outlay was Rs 1.35 lakh crore according to the official data released earlier this week, about 5.3 per cent more than the outlay for the same period last year.
Since 1999-2000, while public and private investment have gown with the economy during the boom years and slowed down post the global financial crisis, the fluctuation in private investment has been way more pronounced.
