The government won’t resort to fiscal profligacy, but will adopt the principle of prudent spending to create productive assets to reverse decelerating growth momentum, finance minister Nirmala Sitharaman said on Monday. We are putting money where assets need to be created,” Sitharaman said at an Ficci event. She acknowledged that the economy may need some pump-priming. “Yes, we are willing to do that, but we are not willing to splurge the money, we have decided to invest money, only in asset creation, especially to create connectivity.”
The government has budgeted an 18% hike in its capital expenditure for the next fiscal, compared with 13.4% in FY20. However, it has also bridled the pace of its revenue spending. While the shift towards productive spending signals a welcome change, achieving the target without worsening the fiscal deficit will be quite a task, given that the headway to squeeze revenue expenditure is typically limited.
Thanks to lower revenue spending, overall spending will increase 12.7% in FY21 to Rs 30.4 lakh crore, against 16.6% this fiscal. Revenue expenditure is budgeted to rise 11.9% in FY21 to Rs 26.3 lakh crore, against the revised estimate (RE) of 17% for the current fiscal.
Sitharaman has already reiterated her commitment to proposed investments of Rs 103 lakh crore in infrastructure over a six-year period through FY25 under the recently-unveiled national infrastructure pipeline plan. While the pipeline consists of 39% of projects each of the Centre and states, 22% of the projects are envisaged to be executed by the private sector.
About Rs 22,000 crore has already been provided as support to the pipeline, she said. This would cater to equity support to infrastructure finance companies such as IIFCL and a subsidiary of the NIIF. “They would leverage it, as permissible, to create financing pipeline of more than Rs 1 lakh crore. This would create a major source of long-term debt for infrastructure projects and fulfill a long-awaited requirement.”
On Monday, the minister also said the emphasis of the Budget has been on creating a trust-based tax system. “We trust the assessee, we mean that we trust the taxpayers and tax officers have to be lot more objective with the help of technology.”