Calibrated stimulus measures in the wake of the Covid-19 pandemic and a sharp hike in capex in the Budget for FY22reflect the government’s economic strategy of rebuilding battered demand while ensuring that the supply side is expanded enough to move in tandem, principal economic advisor Sanjeev Sanyal told FE.
Moving in that direction, the government is committed to high capital expenditure not just in FY22 but over the next three years, Sanyal said in an interview, seeking to allay fears that the latest capex boost may be a Covid-induced one-off event.
The government has budgeted capital expenditure at Rs 5.45 lakh crore for FY22, which is 26.2% higher than the RE of FY21 and 34.5% larger than the budget estimate (BE) for this fiscal. In contrast, at Rs 29.3 lakh crore, the BE of revenue expenditure for FY22 is 3% lower than the revised estimate for this fiscal and 11.4% higher than the BE of FY21.
“There are two important aspects here. First, the government has kept in mind that its interventions should be calibrated in such a manner that they don’t flare up inflation. Second, since some debt is going to be accumulated in this process, we leave behind some assets for future generation,” Sanyal said.
The first set of relief package, including free grains and dole-out for women Jan Dhan beneficiaries, was taken purely to protect the poor and the vulnerable. But the real demand-side measures were announced when the lockdown was relaxed and supply-side disruptions eased, Sanyal said. “Otherwise, it would be like you are pressing the accelerator when the brakes have been applied.”
Consequently, the capex reversed a 12% drop on year up to September this fiscal to actually rise as much as 21 % by December.
Already, both the government and the central bank had rolled out supply-side steps (guaranteed loans for both MSMEs and relatively large entities, and professionals, liquidity-boosting steps, among others) to match with demand-side stimulus, he said. Now, the enhanced capex, with its focus on infrastructure, will also add to the productive capacity of the economy, apart from spurring demand.
Asked about the need for a development finance institution, as proposed in the Budget, Sanyal said it would be a specialised agency for rapid infrastructure creation and will go beyond funding projects. Banks, barring the top ones, don’t really have specialised units to cater for the entire spectrum of infrastructure financing. So, the DFI would come in handy. Also, more private-sector DFIs will come up as a result of the government creating an enabling set-up with relevant laws.
Explaining the difference between the role of the NIIF and the DFI when both are aimed at helping infrastructure creation, Sanyal said, in common parlance, the quasi-sovereign wealth fund is more equity-focussed while the DFI would be more debt-focussed.
The Budget has proposed a capital infusion of `20, 000 crore into the DFI. Using this, it will likely raise resources up to Rs 5 lakh crore over the next few years and help finance infrastructure projects, apart from creating an entire eco-system around it.
The National Bank for Financing Infrastructure and Development, as the DFI will be known, is expected to play a catalytic role in financing projects under the Rs 111 lakh crore National Infrastructure Pipeline. Ultimately, it will also contribute towards deepening the country’s corporate bond market for infrastructure financing.