The decision to increase infrastructure spending comes at a time when the Indian economy is forecast to contract by more than 5 per cent in 2020-21.
Remya Nair and Moushumi Das Gupta 23 July, 2020 8:24 pm IST
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New Delhi: The government is set to push spending by infrastructure ministries this year as it looks to revive economic growth and boost job creation.
The finance ministry has reached out to major infrastructure ministries like railways and roads and highways, asking them to step up spending to meet budgeted expenditures, two government officials confirmed.
The Covid-19 pandemic and the subsequent increase in expenditures and contraction in tax revenues forced the finance ministry to place expenditure curbs on many government departments. Ministries like health and family welfare, rural development, textiles and food and consumer affairs were some of the exceptions — they were allowed to spend freely as required. But infrastructure ministries like railways, housing and road transport and highways were allowed to spend only up to 40 per cent of the full year budgeted amounts in the first half of the fiscal.
However, with the pandemic, and the consequent lockdown and disruption in economic activity, leading to a sharp growth contraction in the first quarter of 2020-21, the government is keen to revive spending by infrastructure ministries.
Economists expect the Indian economy to contract between 5-12 per cent in 2020-21, but rebound in 2021-22.
Govt can borrow some more
Speaking at a FICCI event Thursday, Department of Economic Affairs Secretary Tarun Bajaj said the government could borrow “a little more” if needed to fund infrastructure spending.
My view
The multiplier impact of infrastructure spending is huge. S& P global writes “We believe, for India, investments in infrastructure equal to 1% of GDP will result in GDP growth of at least 2% as infrastructure has a “multiplier effect” on economic growth across sectors.”