Increased Capex In Budget An 'Optical Illusion': Former Finance Secretary Garg

Increase in the capital expenditure provisions for 2020-21 in the budget is an "optical illusion" and that for the next fiscal is "excessively optimistic and proforma", said former Finance Secretary Subhash Chandra Garg.

In a blogpost titled 'Higher Capital is Optical Illusion', Garg claimed the capital expenditure headline number of Rs 4.39 lakh crore in the revised estimates for 2020-21 is an "optical illusion".

He pointed out that Finance Minister Nirmala Sitharaman highlighted in her budget speech a massive increase of 34.5% in the capital expenditure budget estimates of year 2021-22 (BE 21-22) to Rs 5.54 lakh crore from Rs4.12 lakh crore in BE 20-21.

The revised estimates of capital expenditure for FY21 have also gone up to Rs 4.39 lakh crore, recording an increase of 6.55%.

"Increase in the capex provisions for FY21 is optical illusion and for FY22 excessively optimistic and proforma," he said.

Budget 2021: Related Coverage

• Prosaic Numbers, Old Ideas, Exciting Intentions… Now Execute!

• Does Budget 2021 Rest On Robust Macro Pillars?

• Budget 2021—Truth And Reconciliation

According to Garg, a closer scrutiny of capital expenditure of Indian Railways for FY21 reveals large revenue expenditure disguised as capital expenditure, which creates the optical illusion of higher capex in the fiscal.

Elaborating on the point, he said capital expenditure under all the regular heads of railways for FY21 has heavily under-performed during the year.

Capex for the new lines' construction has reduced from Rs 12,000 crore to only Rs 929 crore, for gauge conversion from Rs 2,250 crore to Rs 26 crore, for rolling stock from Rs 5,787 crore to Rs 2,004 crore, for track renewals from Rs 10,599 crore to nil and so on, Garg said.

"However, the government from General Budget gave a 'Special Loan for Covid Related Resource Gap' of Rs 79,398 crore to railways to provide liquidity support to railways to meet its losses in the current year and also for 'liquidating adverse balance in the public account' of railways for the year 2019-20," he said.

Garg noted that if the 'capital expenditure' of 'Special loan for Covid related resource gap', which is a spurious capital expenditure, is eliminated from the capital expenditure provision of Rs 1,08,398 crore in the RE, the actual capex of railways for FY21 comes down to only Rs 29,000 crore.

"Excluding the provision of the Special Loan of Rs 79,398 crore brings down the RE21 capital expenditure to Rs 359,765 crore from the BE21 provision of Rs 4,39,163 crore," he said.

The former finance secretary further said there is another loan item of Rs 12,000 crore in the budget document which has also added to the capital expenditure of the Centre.

Loans of Rs 12,000 crore have been given to the states under the budget head transfer to states, he said.

Excluding this item, the real revised capital expenditure estimate comes down to Rs 3,47,765 crore, Garg added.