The Editorial Analysis: Creating jobs by increasing capex

 

Capital expenditure in India: Relevance

• GS 3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

 

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Capital expenditure in India: Context

• Budget 2022-23 has allocating ample money towards productive infrastructure investments to address the issue of declining workforce in India.
  • International Labour Organization (ILO) suggest that India’s employment to population (over the age of 15) ratio has steadily dropped from 55% in 2005 to 43% in 2020.
  • Further, CMIE data suggest that across manufacturing and services, India lost nearly 1 crore jobs between December 2016 and December 2021.

 

Creating jobs by increasing capex: Key points

• The first nine months of the current fiscal year 2021-22 (FY22), the Centre’s revenue receipts across taxes and dividends stood at ₹17.3 lakh crore, almost fulfilling the target of full year budget of ₹17.9 lakh crore.
• Reasons
  • Higher income tax and Goods and Services Tax (GST) collections.
  • Conservative Budget projections of last year.
  • Despite the much higher revenue receipts than budgeted, the overall FY22 fiscal deficit is projected to end at ₹15.9 lakh crore (6.9% of GDP), higher than the Budget Estimates of ₹15.1 lakh crore.
• Reasons
  • Additional spending towards food and fertilizer subsidies,
  • Increased allocations towards the National Rural Employment Guarantee Scheme and export incentives, and
  • A clean-up of the books of Air India prior to its sale all contributed towards increased expenditures.

 

 

Capital expenditure budget

• For the FY23, capital expenditure budget has been increased to ₹7.5 lakh crore, 24% higher than the FY22 revised estimate of ₹6 lakh crore.
• On the other hand, revenue expenditure (i.e., into items such as salaries, pensions, interest, and subsidies) has seen an increase of just 1%.
• The expectation is that sustained investment in roads, railways, freight corridors, power, renewable energy along with initiatives such as Production-Linked Incentives (PLI) and other enabling legislation, will contribute in overall development of the country.

 

Challenges in following capex induced growth

• Not all the headline capital expenditure is indicative of fresh greenfield investments. For example: the ₹0.5 lakh crore of clean-up of Air India’s books this year counts as capital expenditure.
• While there is a visible thrust on hard capital expenditure, the outlays towards critical areas such as education, healthcare and urban infrastructure remain subdued.
• The thrust on capital expenditure has resulted in higher fiscal deficit numbers, which can put pressure on interest rates.

 

 

Creating jobs by increasing capex: Way forward

• With ample fund being provided, it is up to the entire administration – Central, State, and local – to ensure that the funds are utilised in a timely fashion, and result in delivery of world-class infrastructure.
• Alongside, ease of doing investments have to be continually addressed, especially around key areas such as land acquisition, contract enforcement, and policy stability.
  • Sustained investments in manufacturing and value-added services hold the key for the growth of small businesses, jobs, and our economic well-being.

 

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