FY '23 CAPEX size not as large as it seems: Crisil

Finance Minister Nirmala Sitharaman sprung a surprise in Budget 2022 by setting aside a whopping Rs 7.50 lakh crore as capital expenditure for FY23 in Budget 2022, which domestic credit rating agency Crisil on Wednesday said "is not as large as it seems".

Sitharaman defined the increased CAPEX strategy as being driven by the twin goals of supporting the economic revival and recovery as the Government builds on infrastructure for a modern India and gaining from the multiplier effect and crowd in private investments at a post Budget industry meet.

On the face of it, the rise in CAPEX from Rs 5.5 lakh crore to Rs 7.5 lakh crore sets the stage for a planned acceleration in infrastructure CAPEX drive and a fillip to near and medium-term growth, if fully implemented.

Industry, hoping for 'crowd in' of private sector investment found room to cheer a commendable move, that according to TV Narendran, President CII, has the CAPEX push balanced well with fiscal consolidation, with the fiscal deficit for FY 23 pegged at 6.4 per cent.

However, Crisil on Wednesday said that the 24.5 per cent step-up in central government CAPEX for the next fiscal is not as large as it seems.

The Union Budget impacts public investment in three ways - first through direct CAPEX which is budgetary allocations to ministries, second via grants for creation of capital assets and third through internal and extra-budgetary resources (IEBR), which fund CAPEX of central public sector enterprises (CPSEs). The IEBR is a below-the-line expenditure that does not impact the central government's fiscal deficit.

According to Crisil, the scaled-up CAPEX would not be as high as seems to be, if one considers that the budgetary CAPEX outlay of Rs 7.50 lakh includes a component of Rs 1 lakh crore, a substantially higher loan for CAPEX to states -- as against Rs 15,000 crore FY 2022 (Revised Estimate).

The Centre would make this available by way of 50-year interest-free loans to help them finance their capital projects, subject to fulfilling specified conditions. Had this been in line with the previous years, budgetary CAPEX for the next fiscal would have been lower at 2.58 per cent of the Gross Domestic Product (GDP), barely making it to this fiscal's RE, points out the Crisil report.

The rating agency, though, notes that CAPEX support for states has increased and employment generating sectors such as roads and highways, and railways have gained more attention.

Second, the enhanced budgetary CAPEX has been offset through a reduction in the IEBR which has been budgeted at 1.82 per cent of GDP for the next fiscal, much lower than the pre-pandemic average (fiscals 2018-20) of 3.33 per cent.

This shift away from IEBR to budgetary CAPEX is likely the result of poor CAPEX execution by CPSEs of late as utilisation rates i.e., the ratio of actual to budgeted expenditure came down significantly during the pandemic years, Crisil finds.

The third contention by Crisil is that the budgetary CAPEX in terms of percentage of GDP has been revised up to 2.60 per cent for this fiscal from 2.39 per cent in the Budget Estimates (BE) but this reflects the inclusion of a one-time "capital infusion/loans to AI Assets Holding Ltd/Air India for settlement of past guaranteed and sundry liabilities, not backed by assets", worth Rs 51,971 crore. If this is deducted, fiscal 2022 Revised Estimates (RE) for budgetary CAPEX would actually be lower than the BE at 2.37 per cent of GDP.

The rating agency, however, acknowledges that while governments generally cut CAPEX to make way for higher revenue spending during a crisis, as happened during the global financial crisis in fiscal 2009, the administration has, amid the current pandemic, maintained its focus on CAPEX.

( With inputs from ANI )

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