Union Budget 2022: Public investment to crowd-in the private

Union Finance Minister Nirmala Sitharaman on Tuesday raised capital expenditure (capex) by 35.4 per cent for financial year 2022-23 (FY23) to Rs 7.5 trillion over the Budget Estimate (BE) of FY22 to continue the public investment-led recovery of the pandemic-battered economy.

Capex in the Revised Estimates (RE) for FY22 bumped up to Rs 6.3 trillion due to settlement of Air India’s debt amounting to Rs 51,971 crore before it was handed over to the Tata group. However, keeping that aside, the government’s capex in FY22 is set to fall short by Rs 3,496 crore in RE as against BE. In the first nine months of FY22, capex spending by central government ministries stood at 70.7 per cent, still lower than 75 per cent a year ago.

However, the government seems to have realised the constraints on capex by central government ministries and hence Rs 1 trillion out of the Rs 1.2 trillion additional capex allocation in FY23 will be special assistance as loan to states for capex during the year.

Sitharaman said capital investment holds the key to speedy and sustained economic revival. “Capital investment also helps in creating employment opportunities, inducing enhanced demand for manufactured inputs from large industries and MSMEs, services from professionals, and help farmers through better agri-infrastructure. The economy has shown strong resilience to come out of the effects of the pandemic with high growth. However, we need to sustain that level to make up for the setback of 2020-21,” she said.

To encourage innovative financing, the government will now incentivise important sunrise sectors such as climate action, deep tech, pharma, and agri-tech through thematic funds for blended finance, where the government’s share will be limited to 20 per cent and the funds will be managed by private fund managers.

The government will award contracts for implementation of multimodal logistics parks at four locations through public-private partnership (PPP) mode in FY23. One hundred PM GatiShakti cargo terminals for multimodal logistics facilities will also be developed during the next three years.

The Budget also encouraged innovative ways of financing and faster implementation for building metro systems. Multimodal connectivity between mass urban transport and railway stations will be facilitated on priority. Design of metro systems will be reoriented and standardised for Indian conditions.

Sitharaman said the virtuous cycle of investment requires public investment to crowd in private investment. “At this stage, private investments seem to require that support to rise to their potential and to the needs of the economy. Public investment must continue to take the lead and pump-prime the private investment and demand in 2022-23,” she added.

To incentivise private capital, Sitharaman said measures will be taken to enhance financial viability of projects including PPPs. “Enhancing financial viability shall also be obtained by adopting global best practices, innovative ways of financing, and balanced risk allocation,” she added.

Congress spokesperson Gourav Vallabh asked the finance minister on Twitter: “In FY22, GoI’s capex in the first eight months is 50 per cent of what is budgeted for the same year? How to ensure capex of Rs 7.5 [trillion] in FY23 will be spent…?”