Representative image with the word 'Capex' written
Credit: iStock Photo
At end November, the Government of India capital expenditure (capex) at Rs 5.14 trillion could reach only 46.2 per cent of total budgeted capex of Rs 11.11 trillion.
This was nominally smaller than Rs 5.86 trillion and spectacularly lower than the run rate of 61.8 per cent of Rs 9.49 trillion capex in same eight months of 2023-2024.
The government has been singing paeans of its capex record in boosting GDP growth, which has also slowed down considerably.
Why is the government capex growth engine sputtering? Can the government fix it? If not, what?
Road capex has run aground
Road capex at Rs 2.72 trillion in 2024-2025 Budget, the largest capex item, is higher than the capex budget of Rs 2.59 trillion in 2023-2024. At end September, road capex of Rs 1.41 trillion was lesser than Rs 1.56 trillion 2023-2024 capex.
Road capex crawled only to reach Rs 1.47 trillion at end November rolling out expenditure of less than Rs 6,000 crore in two months! So little expenditure on building roads?
It has been reported that the NHAI pre-paid loans of Rs 56,000 crore (out of outstanding loans of Rs 3.35 trillion) during current fiscal year. If the loan repayments are from the capex of Rs 1.47 trillion, there is no second guessing that the road building programme has virtually run aground.
Roads capex has been, until now, the best government capex. It is not difficult to see its adverse impact on GDP growth.
Railways capex trudging along
Railways capex at Rs 1.36 trillion at end September, of a total budget of Rs 2.52 trillion, was marginally down from the Rs 1.43 trillion capex in the first six months of 2023-2024. The actual capex of Rs 1.68 trillion at November end, two-third of budget, suggests that the Railways is on course to fully utilise its capex budget.
The trouble with Railways capex is that it is not contributing materially to the gross value added (GVA) growth on account of its very inefficient incremental capital output ratio (ICOR).
Slackening interest free loans to states
Budget 2024-2025 has a provision of Rs 1.92 trillion for loans and advances. By November end, Rs 86,387 crore could be disbursed — 44.9 per cent of the budgeted capex.
Loans and advance capex budget include Rs 1.62 trillion of loans to the states of which Rs 1.50 trillion is the provision for 50 year interest-free loans for capital expenditures. By end of November, loans of Rs 70,138 crore of loans could be transferred — only 43.2 per cent of the budget.
The government had tied Rs 95,000 crore of the capex loans to reforms and states’ performance — land reforms, completion of infrastructure projects, etc., with the remaining Rs 55,000 crore to be disbursed as untied loans, which are also subject to policy conditions like states not changing the names of centrally-sponsored schemes (CSSs).
Worried about slow absorption by the states, the government has recently reduced the allocation for tied loans. The states impacted by natural disasters would be provided 50 per cent additional untied loans.
It is unlikely that the government would be able to use 80 per cent of the budget. Shoving 50-year interest free loans down is also proving difficult,
Defence outlays moving slowly
Defence outlays are episodic in nature and can vary month to month.
In first six months, the government spent Rs 53,983 crore of the capex budget of Rs 1.72 trillion, which was smaller than the Rs 63,651 crore spent in same period in 2023-24.
There was no noticeable leg-up by end of November either, with defence capex rising to only Rs 70,725 crore — barely 41 per cent of annual budget.
Defence capex might also see major savings this year,
BSNL capex, thankfully, not spent
The government budgeted Rs 84,496 crore for telecommunication capex, Rs 82,916 crore of which for equity capital infusion in BSNL.
The BSNL capital infusion was meant to clean up accumulated losses and to provide funds for 5G licence though without any likelihood of gaining subscribers.
Capex of only Rs 5,424 crore — not even 6.5 per cent of annual budget — has been incurred by November end.
The government has probably decided not to waste good money after bad by not providing capital infusion to BSNL. This lower capex certainly will not hurt GDP growth.
DEA’s new schemes
The Department of Economic Affairs (DEA) has an unusually large capex budget of Rs 66,197 crore, including Rs 62,593 crore for ‘new schemes’.
No new capex scheme has been approved during the year so far. Not surprisingly, by November end, the DEA capex was Rs 2,948 crore; not even 4.5 per cent utilisation in eight months.
Undoubtedly, more than 85-90 per cent of DEA capex budget would remain unutilised.
Significant shortall in capex
Considering the state of capex, it is highly unlikely that the government would be able to cross Rs 10 trillion capex against the budgeted Rs 11.11 trillion.
There is a good likelihood that the capex might fall below the last year’s capex of Rs 9.49 trillion. Does it indicate the government’s loss of faith in the capex growth engine?
(Subhash Chandra Garg is former Finance & Economic Affairs Secretary, and author of ‘The Ten Trillion Dream Dented’, Commentary on Budget 2024-25 and ‘We Also Make Policy’.)
Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.