When Union Finance Minister Arun Jaitley lands in the U.S., he will be able to present a healthy picture of India’s growth to investors. The Union government’s Plan capital expenditure is showing a robust pick-up, show data from the Controller-General of Accounts. It is up to Rs. 52,612 crore in the first five months of the current fiscal, till August, 38 per cent higher than the Rs. 38,112 crore spent in the corresponding period last year.
The break-up of the expenditure is not available yet; however, Finance Ministry sources say bigger allocations are being made this year for public investments in infrastructure, especially roads. Shifting the thrust of government spending to capital expenditure is the key growth-boosting strategy of this year’s Union Budget. Mr. Jaitley allocated Rs. 70,000 crore for public investments, including in railways and road infrastructure. This strategy was proposed by Chief Economic Adviser Arvind Subramanian in the Economic Survey, the curtain-raiser to the budget, and it is based on the higher value of the fiscal multiplier of capital expenditure, a Ministry source says. Economists Sukanya Bose and N.R. Bhanumurthy of the National Institute of Public Finance and Policy have estimated that every rupee of capital expenditure in India generates expansion of the order of 2.45 times in the economic output.
The fiscal multipliers for other types of spending, according to the economists’ estimates, are much lower. “While an increase in output can be brought about through any kind of public expenditure, the capital expenditure multiplier is the highest … The estimated size of multipliers suggests the need to prioritise capital expenditure,” says their paper “Fiscal multipliers for India”.
