COVID-induced slowdown: Centre opens its wallets to boost consumer sentiments

The COVID-triggered pandemic has prompted the Union government to spend its way out the severe slowdown that gripped the economy. In the Union Budget for 2021-22, the Centre proposed to a capital expenditure of Rs 5.54 lakh crore which was 34.5% more than the budget estimate for FY21. And as the second wave of COVID is threatening to engulf the entire country at a furious pace, the Centre has unshackled the different ministries to expedite spending on capital expenditure to shake off the paralysing effects of the pandemic.

It is time-tested way for governments to spend and spur growth and capital expenditure is the way forward now, the government thinks.

On April 22, it empowered ministries to undertake projects and freed them of the curbs in monthly and quarterly expenditure. The freedom to spend comes immediately and would continue till further notice.

The stepping up of capital expenditure can mean a quick beginning to infrastructure projects such as roads, ports, airports, which, in turn, can result in employment of blue collar workers and flow of money into their hands.

According to estimates by the Reserve Bank of India, every rupee spent by the Centre will trigger an increase in gross domestic product by Rs 3.14.

Capex push

The capital expenditure announced for 2021-22 has the highest share of the budget in a decade.

That the Centre was targeting a push to capital expenditure was evident from last year (2020-21), when it raised allocation to planned capital expenditure from Rs 4.12 lakh crore to Rs 4.39 lakh crore.

While delivering the budget speech on January 31, Union finance minister Nirmala Sitharaman said, “It was our effort that in spite of the resource crunch we should spend more on capital expenditure.”

To egg on the ministries to spend fast and judiciously, the finance minister also dangled carrots.

“I have kept a sum of more than Rs 44,000 crore in the budget head of Department of Economic Affairs to be provided for projects, programmes or the departments that show good progress in capital expenditure and are in need of further funds,” Sitharaman said during her Budget speech.

Beyond these figures, the government would also be providing more than Rs 2 lakh crore to states and autonomous bodies for their capital expenditure.

While the Indian economy is expected to contract 7.7% in 2020-21, the government was expecting a V-shaped recovery in 2021-22. All major rating agencies and organisations such as IMF and World Bank were forecasting growth rates of 11-13%, when the second wave of COVID struck jeopardising all projections.