Capital expenditure (capex) has been the biggest fiscal policy pitch of the Narendra Modi-led Union government from 2021-2022 when Finance Minister Nirmala Sitharaman provided Rs 5.54 lakh-crore for capex with an increase of 34.5 per cent over 2020-2021 BE (budgeted estimate). She doubled down on stepping up the capex in both the 2022-2023 and 2023-2024 budgets.
Terming capex as the ‘driver of growth and jobs’, Sitharaman blew the capex bugle in the 2023-2024 speech: “Capital investment outlay is being increased steeply for the third year in a row by 33 per cent to ₹10 lakh-crore” which would be “almost three times the outlay in 2019-2020.”
Curiously, there was almost no mention of capex in the 2019-2020 and 2020-2021 budgets.
What is the reality of the capex hype?
Deceptively impressive
In the last five years of the Modi government (Modi 2.0), the nominal capex grew impressively from Rs 3,07,714 crore in 2018-2019 to Rs 10,00,961 crore in 2023-2024 BE, yielding a CAGR of 26.6 per cent.
Total capex for the five years (including 2022-2023 RE (revised estimate) and 2023-2024 BE) is Rs 30,80,448 crore — with an average of Rs 6,16,890 crore per annum.
The nominal budgetary capex, however, is quite deceptive.
Loans are not capex
Budgetary capex includes ‘loans and advances’ given to state governments and others. These loans might lead to capex by the recipients, but they are not capex for the Union government.
These loans spurted massively in Modi 2.0, rising from Rs 24,414 crore in 2019-2020 to Rs 1,63,834 crore in 2023-2024 BE.
The budgetary capex of Rs 10,00,961 crore comes down to Rs 8,37,127 crore if you exclude these loans.
For these five years, excluding the loans and advances of Rs 4,65,185 crore, the capex comes down to Rs 26,19,263 crore (down from the nominal capex of Rs 30,80,448 crore).
Some capital outlays were not capex
Buying arms and armament for defence services, while necessary from the national security perspective, is not economic growth-generating capex. In 2023-2024, such capital outlays are Rs 1,99,104 crore, which brings down the capex to Rs 6,38,023 crore.
For these five years, the real growth capex, excluding unproductive capex of Rs 8,24,671 (defence outlay Rs 6,95,982 crore), comes down to Rs 17,94,592 crore.
Part of capex was phoney
The Union government provided Rs 62,365 crore as ‘equity’ to the Air India Assets Holding Ltd. in 2021-2022 for clearing the liabilities of Air India Ltd. upon its privatisation. It also infused equity of Rs 89,829 crore in zombies BSNL and MTNL to cover their losses and to provide funds to pay the licence fee for 4G and other dues.
Excluding such a phoney capex of Rs 1,52,194 crore, the productive budgetary capex comes down to Rs 16,42,398 crore — 53.3 per cent of the total nominal capex of Rs 30,80,448 crore.
Massive substitution of public sector capex
The Union government undertakes capex through two channels — the budgetary and public sector internal and extra-budgetary (IEBR), which is presented in the Budget - Expenditure Profile.
During the 2019-2024 period, the government substituted IEBR capex massively with the budgetary capex.
The railways capex of Rs 1,32,642 crore in 2018-2019 was funded by Rs 52,103 crore from the Budget and Rs 80,539 crore from the IEBRs. In 2018-2019 and 2019-2020, the IEBRs funded 57.3 per cent of railways capex.
From 2021-2022, the roles reversed. The budgetary capex rose to Rs 1,58,997 crore in 2022-2023 RE and Rs 2,39,925 crore in 2023-2024 BE, while the IEBR capex came down to Rs 95,943 crore and Rs 52,783 crore respectively. Therefore, the total railway capex during the 2019-2024 period is Rs 10,41,438 crore.
If 57.3 per cent of the capex had come from the IEBR, it would have contributed Rs 5,96,348 crore of railways’ capex. As this channel provided only Rs 4,27,534 crore, the government clearly substituted at least Rs 1,68,814 crore of railways capex from the Budget.
In the road sector, the capex substitution was worse.
In 2018-2019 and 2019-2020, the IEBR channel funded 49.2 per cent of the NHAI’s capex —Rs 1,36,205 crore out of Rs 2,76,668 crore. The IEBR channel dried up completely from 2022-2023.
During the 2019-2024 period, the total NHAI capex was Rs 9,27,066 crore. Of this, the government provided capex support of Rs 7,21,095 crore.
If the NHAI had provided 49.2 per cent share, the IEBR capex would have been Rs 4,56,383 crore. As the NHAI provided only Rs 2,05,941 crore, there was clear substitution of Rs 2,50,412 crore capex.
For the railways and the NHAI together, the government substituted capex of Rs 4,19,226 crore, that too in the last three years.
The reality
The nominal budgetary capex, adjusted for the substituted capex, is only Rs 12,23,172 crore — less than 40 per cent of the claimed capex of Rs 30,80,448 crore for the five years of the second Modi government. This is the reality.
This is corroborated by another fact. During 2019-2024, the IEBR channel recorded a negative CAGR of 4.3 per cent, resulting in a not-so-impressive growth of the total public sector capex from Rs 9,15,670 crore in 2018-2019 to Rs 14,88,706 crore in 2023-2024, which generated a CAGR of only 10.2 per cent. This capex CGAR growth is lower than the capex growth during the 2014-2019 period.
(Subhash Chandra Garg is former Finance & Economic Affairs Secretary, and author of ‘The Ten Trillion Dream’ and ‘We Also Make Policy’)
Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.
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