Notwithstanding global headwinds, the Indian economy is strong compared to other countries on the back of government’s three-pronged strategy — judicious mix of demand and supply side actions; timely, targeted and impact-oriented welfare measures; and an upthrust to public spending while balancing growth-inflation dynamics with progress of over 1,500 ongoing projects worth ₹26 lakh crore are under constant monitoring at the highest level, people aware of the development said.
The central government is watching every global development and responding appropriately so that the economy continues to grow without stoking inflation, they said, requesting anonymity. Public expenditure, particularly capital investments, have been aggressively pursued for its multiplier effect on the economy, they said. While the return on Re 1 spent for revenue expenditure is only 45 paise, the same amount spent on infrastructure gets a return of ₹2.45 in the first year and ₹3.14, and ₹3.25 in subsequent years, they said.
This is the reason why the 2022-23 budget raised capital expenditure by 35.4% to ₹7.50 lakh crore in the current financial year from ₹5.54 lakh crore in 2021-22, one of them said. Referring to the enhanced capital expenditure in 2022-23, finance minister Nirmala Sitharaman in her budget speech on February 1 had said: “With this investment taken together with the provision made for creation of capital assets through Grants-in-Aid to States, the ‘Effective Capital Expenditure’ of the Central Government is estimated at ₹10.68 lakh crore in 2022-23, which will be about 4.1 per cent of GDP (gross domestic product).”
“Besides, the government is monitoring more than 1,500 major infrastructure projects of ₹150 crore and above, which are at various stages of implementation,” another official said. “The total expenditure till the end of last month (September) was ₹13,78 lakh crore, which is over 53% of total anticipated cost of ₹25.78 lakh crore.”
The Centre’s continuous thrust on capital expenditure has “significantly promoted broad-based growth” by facilitating private sector capital formation with 44% annualised growth in the first half of 2022-23, the finance ministry said in its Monthly Economic Review for September, released on Saturday.
It is on the back of the government’s capital expenditure from April through August, which is 46.8% higher than the corresponding period of the previous year, with the majority of the spending seen in roads, railways and defence, it said.
The government’s spending on capital expenditure will be sustained due to buoyancy in revenue growth, which would remain undiminished in the remaining period of 2022-23, according to the second official. The Goods and Services Tax (GST) collections in September crossed ₹1.40 lakh crore for the seventh consecutive month. The gross direct tax collection also registered a steady growth at ₹8.98 lakh crore as on October 8, a 23.8% year-on-year increase.
“An increase in tax revenue can be attributed to improvements in tax compliance (seen in a surge in the number of returns filed), higher corporate profitability and rising economic activity,” the finance ministry report said. The central government’s receipts from customs and excise duties, however, fell due to cuts on levies on cotton, edible oils, lentils, petrol and diesel to tame inflation and provide respite to consumers.
Falling exports is one of the concerns, the official said. According to the report, India’s economic growth would have been higher, “but for the performance of merchandise exports which, after witnessing a strong recovery in FY 2021-22, and sustaining the rebound in Q1 of FY 2022-23 as well, plateaued in Q2” with the demand slowdown in the advanced economies.
“On the other hand, merchandise imports driven by elevated global commodity prices and the continued recovery of the Indian economy have shown sustained growth. Stabilised exports and sustained imports have widened the current account deficit, adding to the pressure on the rupee already being exerted by weak capital inflows,” it said.
“Expected real economic growth of 6.8 per cent for India in 2022-23 is the second highest in G20 and at 6.1 per cent for 2023-24, the highest in G-20,” it said, citing the International Monetary Fund projections. The Reserve Bank of India on September 30 also cut India’s GDP projection to 7% in 2022-23, considering risks due to “the headwinds from extended geopolitical tensions, tightening global financial conditions and possible decline in the external component of aggregate demand”.
The officials also pointed at continued risks, largely due to external factors such as the Ukraine war and supply chain disruptions. “While food, fuel and fertiliser subsidies have jumped raising non-plan revenue expenditures, buoyant tax revenue receipts may absorb the higher subsidy burden,” the first official said.
According to estimates, India’s fertiliser subsidy alone is expected to surge above ₹2.5 lakh crore in 2022-23, an over 138% jump from the budget estimate (BE). The government recently approved a one-time grant of ₹22,000 crore to state-run oil marketing companies that took a hit on cooking gas between June 2020 and June 2022, which is a 450% jump from ₹4,000 crore direct transfer of LPG subsidy in BE for 2022-23.
The government also extended its enhanced free grain scheme for another three months to December 31 with additional financial implication of ₹44,762 crore, which is over the ₹80,000 crore spent so far in 2022-23.
Global uncertainties and rising subsidies are major concerns in 2022-23. “Even as India remains one of the bright spots in an otherwise gloomy global scenario where the dark clouds of recession gather, the country’s fiscal and monetary authorities must remain watchful,” the monthly report said.
“The one big strength that India has compared to other countries is the strength of its balance sheet in the household, corporate, and banking sectors. The stability it imparts in these times is priceless. Therefore, the country should be able to meet these challenges and keep the economy growing steadily,” it added.
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