FM denies claims on focus shift from capex

Union finance minister Nirmala Sitharaman denied a charge by the Opposition that the government has achieved its fiscal targets in Union Budget 2025-26 by shifting its focus from capital expenditure

Union finance minister Nirmala Sitharaman on Thursday denied a charge by the Opposition that the government has achieved its fiscal targets in Union Budget 2025-26 by shifting its focus from capital expenditure, and said that the effective capital expenditure is actually ₹19.80 lakh crore, including the money set aside for this purpose by state-owned firms.

Union finance minister Nirmala Sitharaman pointed to global uncertainties and said the budget has been prepared at a difficult time particularly because of “very-very severe” external challenges (Sansad TV)

Replying in the Rajya Sabha to the debate on the budget, the minister explained that effective capital expenditure “includes core capital outlays in the Union Budget and also the grants-in-aid for creation of capital assets to the states. So, though the grants-in-aid for creation of capital assets is accounted as revenue expenditure, in the books of the Union government, yet they go to the states to create capital assets, and, therefore, they are also effectively, eventually, only capital expenditure.”

She added: “So, in the budget for 2025-26, which is before us, the effect of capital expenditure is projected at ₹15.48 lakh crore as against ₹13.18 lakh crore in the revised estimate (RE) of 2024-25… There is just no reduction in capital expenditure; even more, if we take this together with what is done by the public enterprises. (they are independent of the budget.)... for the year 2025-26, the capital outlay, which I would define as effective capital expenditure, is likely to be in the range of ₹19.80 lakh crores.”

Earlier, opening the debate on Union budget 2025-26 in the Rajya Sabha, Congress leader and former finance minister during the UPA regime, P Chidambaram said that the government’s fiscal management is at the cost of capital expenditure. “The target was 4.9% and the achievement was 4.8%. But how did she achieve this 4.8%? She cut capital expenditure by the Central Government by ₹92,682 crore.” “She cut the grants-in-aid to states for creating capital assets -- that is another form of capital expenditure – by Rs. 90,887 crore. So, total cut in capital expenditure by the Centre and the States -- I am not apportioning blame – in the current year, will be Rs. 1,83,569 crore. By cutting capital expenditure by such a humungous amount, she saved on the fiscal deficit Rs. 43,785 crore.”

While replying to the charges, Sitharaman accused Congress-ruled states such as Karnataka and Telangana for slack capital expenditure and urged Chidambaram to prod them to make higher capital expenditure. She said that “the former finance minister (Chidambaram) has really appreciated and realised the importance of the capital expenditure. And so at least I’m glad that he realises that capital expenditure has greater multiplier…”

While beginning her reply, Sitharaman pointed to global uncertainties and said the budget has been prepared at a difficult time particularly because of “very-very severe” external challenges, most of which are “beyond” any projection or prediction.

“There are no models that you can build and understand how the trends will be because they are very dynamic, changing by the day.” But despite that we have tried keeping the assessments in the budget as close as possible, keeping India’s interest top most, she said.

The budget has very clearly identified the difficulties which are before the country, the minister said.

She listed some of these.

For instance, she said, fiscal prudence versus growing global debt is a reality. She added that while everybody wants to have a free market , there are aggressive tariff barriers and non-tariff barriers. Usually, the minister said, the resolution is to approach multilateral institutions. But these are weak today. . So bilateral partnerships and regional forums are the ones which are really governing the situation so much, contrary to all those principles with which the world has moved in terms of an economic order, Sitharaman said.

These global challenges form the backdrop against which the Indian economy is expected to grow by 6.4% this year (according to the first advance estimates) and between 6.5% and 6.8% next year according to the Economic Survey. The 6.4% growth translates into 9.7% in nominal terms. “So, the budget this year we have kept our goals in such a way that we are able to accelerate growth, secure inclusive development, invigorate private sector investments, uplift households’ sentiments, and also to directly or indirectly enhance spending power of the Indian rising middle class,” she said.

“In all this, we have seen that there are four groups of people that if you touch and serve, the impact will be across the country -- garib, youth, anndata and nari [the poor, the youth, the farmer, and women]. And, therefore, every scheme that we have before us has something to bring -- in terms of benefits -- for these four large groups,” the minister added.

Criticising the budget Chidambaram said the government’s move to give direct tax rebate worth over ₹1 lakh crore would have limited impact on the economy. “The size of GDP this year is ₹324 lakh crores. ₹1 lakh crores of Rs. 324 lakh crores is 0.3%! Are you seriously saying and are you asking this House to believe that 0.3% will boost the economy?”

Instead of cutting income-tax, or along with cutting income-tax, the minister should have cut the GST, he said. “Everybody pays GST. The richest and the poorest are paying GST. She could have cut GST. She could have cut the tax on petrol and diesel. Everybody indirectly or directly uses petrol and diesel. She could have increased the MGNREGA daily wage.”

To be sure, GST rates are set by the GST Council in which the states are represented.