Govt looks to spend $7.5 billion more, with a bit of fiscal math

NEW DELHI: With the private sector still shying away from investment activities, the government is looking to increase public spending significantly in key sectors,

NEW DELHI: With the private sector still shying away from investment activities, the government is looking to increase public spending significantly in key sectors, including infrastructure and health, in a move that will have a multiplier effect on the economy and GDP growth.

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Government sources said while the Centre is keen to boost spending, the fiscal math needed to be worked out and a decision on the quantum is yet to be finalised. However, the process of assessing started in the last week of September itself, finance ministry sources said.

While this demand will be made by the finance ministry once the Parliament session begins in mid-November, reports have started speculating on the amount of extra spending. Reuters put the amount at $7.5 billion (over ₹50,000 crore).

The fiscal math is a cause of concern for the government. The fiscal deficit target for the current financial year is 3.5% of GDP, but the spectrum auction has not yielded the desired results. Besides, the implementation of the recommendations of the Seventh Pay Commission is expected to lead to an additional outflow of Rs1.02 lakh crore for the government. The recapitalisation exercise for banks is also likely to cross the targetted Rs 25,000 crore.

“With a stiff fiscal deficit target ... we need to clearly chalk out the math. The spectrum auction has fetched much lower than expected,” a senior finance ministry official told HT on the condition of anonymity. “Talks are on and the government wants to see how spending can be increased. But there is nothing on the table.”

An increased spending would also mean more jobs.

The total expenditure in 2015-16 was 13.2% of GDP, or Rs 17.85 lakh crore .

Echoing the same sentiment, one of the economic advisers to the finance minister added: “The need to boost infrastructure spending is a necessity. But the fiscal deficit target has left little elbow room for a big increase in spending. A supplementary demand will be made, but the quantum of it is the question.”

“We will have to see how much other ministries have managed to spend from the budget allocation,” said a finance ministry official. The finance ministry has the option of cutting the allocation made to different ministries if they fail to utilise it.

Prasenjit Bose, an economist and political activist, said it was important to increase “real” expenditure. “Private investment has remained muted, bank credit is still a cause for concern…so it is important to raise real public expenditure.”

The growth in gross fixed capital formation — a proxy for investment activity — declined to 29.6% of GDP in the first quarter of 2016-17, from 32.7% in the same period of the previous fiscal.

A recent report by the World Bank warned a shortfall in revenues from stake sales and the spectrum auction could hit public finances.

“If these are not met, there is a risk that growth-enhancing capital and social spending may be cut to meet fiscal targets, or that fiscal targets may be missed,” said the report.

India’s economy expanded 7.1% in the April-June quarter, compared with 7.9% in the previous quarter.