The Central government’s kitty is drying up from its efforts to keep up the expenditure momentum, a trend that has been recorded over the last decade. However, it has been able to crowd in public investment through a heavy reliance on the internal and extra-budgetary resources (IEBR) of its sprawling public sector undertaking (PSU) network.
For instance, overall capital expenditure in the next fiscal year (FY20) is projected to grow just six per cent against 20 per cent in FY19, reflecting the Centre’s deteriorating spending capability and an ongoing skew towards social welfare spending. In contrast, it is the IEBR of PSUs and states that are largely funding public sector investment. And while central and state government expenditure find mention in the Budget, IEBR is bankrolled by PSU resources and as such, does not get counted as government expenditure. Consequently, they do not feature in the fiscal deficit math.
A breakdown of general government expenditure into central (budgetary support plus IEBR) and state expenditure shows that the share of states has also risen sharply — from 32.6 per cent in FY10 to 43.4 per cent in FY18. The share of the centre meanwhile (excluding IEBR) came down to 28.2 per cent from 45.5 per cent during the same period.
Broadly, of the total public sector-led capital expenditure of `6.64 lakh crore in FY18, the central government’s total outlay was a mere `1.87 crore, while the remaining was done through IEBR spending through its public sector units. During the same period, the combined expenditure of all states was `5.10 lakh crore.
This trend in steadily slowing central government expenditure seems unlikely to change in the near future. Capital spending by the Centre is budgeted to grow at a much slower pace in FY20 and a bulk of the spending will be by the state-run firms led by sectors such as railways, highways, housing and urban affairs and transport.
However, investments by public sector companies in the power and petroleum and natural gas sectors are expected to see a relative decline. In such a scenario, the government would have to play a more supportive role in ensuring that public sector companies don’t falter for lack of funds.