‘Sunrise’ of a Rs 100000 crore corpus
The government does seem to recognise that even the large corporations don’t have the ability to invest in their and our future. It has mooted a proposal to set up a Rs 100000 crore corpus for lending to private sector to “encourage… to scale up research and innovation significantly in sunrise domains.” The proposal is expected to create a golden era for our tech-savvy youth. But then research and innovation in sunrise domains needs equity capital and not debt, even if it is long-term — unless, of course, we are just talking about building low value-adding consumer apps.
In summary, the interim budget, like the earlier ones, is good on intent but displays a limited understanding of the resource mobilisation challenges in meeting the objective of becoming a developed nation or helping hundreds of millions of our young people to find meaningful work that can give them a fair chance at a productive life.
Does the Budget, at least, allocate resources for areas of national priorities?
Resource allocation is not the easiest problem to solve in normal circumstances. In a country with hundreds of millions of poor, but where the politicians are aspiring to make us a developed country, it becomes even more difficult to establish the principles on which we can test the effectiveness of budget allocations.
Capital Expenditure
The central government has been raising the level of capital expenditure consistently, particularly since FY-21 and FY-22. The biggest increase in allocations has come for the ministries of road transport (up from 0.45% in FY-21 of GDP to 0.89% of GDP in FY-24) and railways (up from 0.55% in FY-21 of GDP to 0.81% of GDP in FY-24).
The increase in the Ministry Road Transport’s allocation is largely governed by the fact that the NHAI was struggling to get private sector participation in road construction, as the private sector was not able to raise equity or debt capital on their balance sheet. Increase in railways expenditure is explained by introduction of new trains, transfer to safety fund, etc.
However, both the ministries are budgeted to get a much smaller growth in the next budget – 2.9% for road transport and 5% for railways.
Does it mean that we once more expect the private sector participation to increase, or the incremental level of investment can be financed with current level of allocation?
Another cause of concern is that, at the end of December 2023, we have spent only 67% of the budgeted amount. In the capital context, the spend is usually front ended. It is, therefore, not surprising that the revised budget has cut the capex estimate by Rs 50,715 crores.
Revenue Expenditure
While the annual growth in revenue expenditure at 12% between 2019 to 2024 is less than half that of capex, it is still higher than the nominal growth in GDP at 9.4%.