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To run economy engine at full power, Budget to focus on infra, raise capex

Projects in roads and railways sectors and Nal se Jal scheme are expected to receive funding boost as the government targets to increase capex spending by around 30 per cent next year, government officials said.

Some of the key reform measures of this year’s budget, especially relating to privatisation of two state-owned banks and some key government companies, will spill over to the next year.

A continued push on capital expenditure and roll out of infra projects under the National Infrastructure Pipeline (NIP) will be central to the Union Budget 2022-23 as the Central government looks to hold and build on the recovery in the economy. Projects in roads and railways sectors and Nal se Jal scheme are expected to receive funding boost as the government targets to increase capex spending by around 30 per cent next year, government officials said.

“We have seen the economic recovery this year, but there is a need to hold on it and not let it (the momentum) fizzle out. The Centre is also in discussions with the states to see that the infra projects get rolled out on the ground,” the official said. Bidding of projects under the NIP is expected to gather pace next year. Even as the capital expenditure has been less than anticipated so far, the government expects it come close to Rs 5.54 lakh crore budgeted for 2021-22 by March-end.

“The thrust of the Budget is to maintain a fiscal stance that is contractionary but with the required push on spending where it’s required, especially infra projects, which can be done through reprioritising expenditure,” another government official said, indicating that the government may opt for milder fiscal consolidation from the current level of 6.8 per cent of Gross Domestic Product.

Read |What GDP data says about state of economy, its influence on budget priorities

As a key step to boost private sector capex in infra sector, the government is expected to remove the guideline of seeking bank guarantees for infra projects and possibly replacing them with surety bonds. This has been one of the key demands industry chambers. ahead of the budget. With typically 20 per cent of the funds getting locked up in bank guarantees, this move could possibly free up nearly Rs 8 lakh crore of private sector funds over the entire spread of NIP projects, as per industry estimates.

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“(Among our various Budget suggestions) we have said have surety bonds instead of bank guarantees, because as you spend more on infrastructure, and if you want those kinds of jobs and you have to furnish bank guarantees, that’s a lot of unnecessary cost in the system. The US and in places like that they have the surety bonds, just like an insurance that you have, which can be kept in case somebody’s reneges on contracts,” CII president T V Narendran told The Indian Express.

Bank guarantees are “adding unnecessarily to project costs and will be the single biggest obstacle to rapidly completing construction under NIP…It is time to go for revolving bank guarantees or insurance surety bonds,” FICCI has said in its list of budget suggestions to the finance ministry.

Some of the key reform measures of this year’s budget, especially relating to privatisation of two state-owned banks and some key government companies, will spill over to the next year.

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Capital expenditure by the Centre has been slower than the targeted pace outlined in the Budget. During April-November, the first eight months of this fiscal, the government has incurred 49.4 per cent or Rs 2.73 lakh crore of its total budget target of capital expenditure.

With the nominal gross domestic product (GDP) coming in at a higher level of 17.6 per cent in the first advance estimates released Friday than the FY22 budget level of 14.4 per cent, the government is likely to get more fiscal headroom. Economists, however, said that given the lower-than-budgeted pace of government expenditure so far this fiscal, there is a possibility that this additional fiscal space could come in handy to present a lower fiscal deficit rather than being used to kick off any additional spending during the remaining quarter of FY22. The finance ministry has been holding review meetings with states, departments and ministries to review progress of capital expenditure and implementation of infrastructure projects.

The Union Budget 2021-22 had provided a capital outlay of Rs 5.54 lakh crore. The government had also made provision of over Rs 2 lakh crore for states and autonomous bodies towards their capital expenditure. The National Infrastructure Pipeline was launched in 2020 with projected infrastructure investment of around Rs 111 lakh crore during FY2020-2025 to build infrastructure across the country. NIP was launched with 6,835 projects, which was later expanded to over 9,000 projects covering 34 sub- sectors.

First published on: 12-01-2022 at 04:30:39 am
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