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Budget 2022 Explained: Why FM is pushing for enhanced capex allocation

The government has announced a sharp jump of 35.4 per cent in capital expenditure to fund various infrastructure projects in 2022-23. Why the enhanced allocation?

Depending upon its implementation, Capex spending will provide a big boost to investment activity and support economic growth in the next year. (PTI Photo)

The government has announced a sharp jump of 35.4 per cent in capital expenditure to fund various infrastructure projects in 2022-23. In her Budget speech, Finance Minister Nirmala Sitharaman said capital investment holds the key to speedy and sustainable revival and public spending is required to take the lead.

Why the enhanced allocation?

The government will invest Rs 7.50 lakh crore as capital expenditure next year, a sharp jump from Rs 5.54 lakh crore in the current year. Capital investment holds the key to speedy and sustainable revival. The economy has shown strong resilience to come out of pandemic impact with strong growth,” Sitharaman said while presenting her budget. The virtuous cycle of public investment crowding in private investment is required. Public investment is required to take the lead, she said.

Depending upon its implementation, Capex spending will provide a big boost to investment activity and support economic growth in the next year.

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Pushing the NIP

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 FY 2020-2025 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.

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.

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The government has also announced to provide an alternative option to the guideline of seeking bank guarantees for infrastructure projects and replacing them with surety bonds, Sitharaman said.

The Insurance Regulatory and Development Authority has given a framework to replace the need for bank guarantees with surety bonds, the finance minister said. 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 National Infrastructure Pipeline projects, as per industry estimates.

“The targeted focus on capital expenditure, with its resulting multiplier effects, will be vital in sustaining the economic growth,” the Economic Survey said Monday.

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First published on: 01-02-2022 at 01:25:11 pm
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