New Delhi: To give a boost to public spending, the finance ministry has written to chief secretaries of all states and union territories asking them to increase the pace of their capital expenditure for the remaining part of 2021-22.
“The ministry is in constant touch with chief secretaries of all states to support them in their efforts to increase capital expenditure,” a senior finance ministry official told ThePrint on condition of anonymity.
The communication to the states through this week is part of an ongoing exercise and a comprehensive review is being done by the finance ministry on capital expenditure not only with central government departments but also with state departments.
Efforts to ensure that states increase capital expenditure also come at a time when private sector spending has remained slow. Private capital expenditure is important to revive the economy on a sustainable basis as the capital expenditure of the Center is a fraction of the overall investment in the economy. In 2020-21, the capital expenditure of the Center was just 8 per cent of the gross fixed capital formation.
Gross fixed capital formation is viewed as a proxy for investment in the economy.
Therefore, despite a 26 per cent increase in the Centre’s capital expenditure in 2020-21, gross fixed capital formation declined by 8.6 per cent in the year when it was measured in nominal terms.
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FM to meet state ministers
According to the official cited above, Finance Minister Nirmala Sitharaman is scheduled to meet state finance ministers on December 30 to discuss capital expenditure targets for states in 2022-23 and various impediments to increasing spending.
“There will be a meeting with the finance ministers of all the states in Delhi,” the official said.
Last month too, Sitharaman held talks with chief ministers and finance ministers of states, reviewed progress on capital expenditure, and asked them to increase their spending to create more employment opportunities.
According to a memorandum of the Department of Expenditure, the finance ministry had set the capital expenditure target of states at Rs 5.79 lakh crore for 2021-22.
Finance Secretary TV Somanathan had said last month that most states were on track to achieve the target set for the current fiscal.
worry about spending
The Center is also concerned about the expenditure of the states as they have reduced their borrowings from the market this fiscal. States have so far borrowed 39 per cent less on a net basis this year than in the year-ago period.
Every year, the Center provides a borrowing limit for all states which is calculated as a percentage of their GDP.
Of the borrowing limit of 4 per cent of states’ GDP in this fiscal, Rs 8.47 lakh crore, 0.5 per cent or Rs 1.06 crore, was earmarked for incremental capital expenditure.
Apart from this, the Center had also introduced a new incentive scheme for the states in early 2021-22. It said that if states meet 15 percent of their spending targets by the first quarter ending June, 45 percent by the end of the second quarter ending September and 70 percent by the end of the third quarter, they will Will be eligible for incremental borrowing. December.
For its own capital expenditure, the Center had set a target of spending Rs 5.54 lakh crore in the current fiscal, which is 34.5 per cent higher than the previous year. According to the latest data from the Controller General of Accounts, the Center reduced its expenditure in October.
Capital expenditure in October was 24 per cent lower than last year at Rs 23,900 crore, while it rose 28 per cent to Rs 2.5 lakh crore in the seven months to October.
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