Budget 2022: What Is The Real Increase In Capex?

The central government's budget for 2022-23 showed a sharp jump in capital expenditure to a planned Rs 7.5 lakh crore. That 35% increase in budgeted capex, however, may not all be fresh funding.

According to Neelkanth Mishra, India strategist at Credit Suisse, a “large part of capex growth (is) an interest free loan to states and off-budget spending brought in”.

Non-discretionary items like interest costs continue to dominate central government spending, Mishra said. A break-up of incremental spending by Credit Suisse showed that interest, transfers to states and transport account for most of it.

Overall capex spending remains dominated by roads, railways and defence, showed data from Credit Suisse.

Ananth Narayan, associate professor at SP Jain Institute of Management and Research, said that off-budget spends on account of National Highways Authority of India and BSNL Ltd. may have been brought on budget, boosting the overall capex.

”Both for NHAI and BSNL, there is a significant reduction in off-balance sheet type borrowings,” said Narayan in a conversation with BloombergQuint. “About Rs 65,000 crore of NHAI debt and Rs 15,000 crore of BSNL debt is not showing in this year's numbers. So it appears that the government is continuing with the clean-up of off-balance sheet items,” Narayan said. As such, about Rs 80,000 crore of the budgeted capex may not be fresh spending.

Narayan said that the Rs 1 lakh crore loan to states is genuine and fresh capex. However, it may be spent via states rather than the centre, Narayan added.

Mishra said the capacity to spend remains a concern as well. The government is still struggling to spend in FY22, and this challenge should persist in FY23, he wrote in his report. The same goes for states. “The government has capacity issues in spending; (it) cannot quickly raise spending in size.”

According to Morgan Stanley, industrial capex is up 9% at Rs 9.7 lakh crore, with budgetary support making up a large chunk of it at 28%. Off-budget capex is down 3%.

Capital expenditure on infrastructure is up 11% in real terms, while defence and PSU capex is up 10% and 6%, the investment banking company said in a post-budget note.

"While centre's capex is expected to grow 24%, including internal and external budgetary receipts, the capex number looks less robust, with 7% growth from 22% in the revised estimates of FY22," said Madhavi Arora, economist at Emkay.

Nomura added that gross budgetary support and internal and external budgetary resources are not fully adequate to assess the potential for public capex. “This is because certain infrastructure spends like rural electrification, rural roads, affordable housing are considered revenue expenditure, while certain non-infrastructure spends like interest on loans are counted as capital spending.”

The real rise in infrastructure capex, except in core segments such as rail, Jal Shakti, renewables and affordable housing is “modest”, and that there's a minimal increase in other key segments like roads, it said in a note.