Rs1,10,000-cr Plan spending in April-May fails to stimulate economy

The union government has expanded its Plan expenditure by over 45 per cent to Rs90,570 crore during the first two months of the current financial year (April-May 2016-17) against Rs62,106 crore spent during the corresponding period a year ago, data available with the Controller-General of Accounts (CAG) showed.

At Rs90,570 crore, the Plan expenditure in the first two months of the fiscal was the highest in the last five years. For the fiscal first quarter (April-June 2016-17) the spending is likely to have crossed Rs1,00,000 crore.

Reports quoting finance ministry officials said the final figures could be around Rs1,10,000 crore between April and June 2016, although this has failed to spur private investment.

While this is expected to partly compensate a dearth of private investments, it could spur further investment in a way to pump-prime the economy for the current fiscal and beyond.

For the whole of fiscal 2016-17, the centre has budgeted Plan expenditure of an estimated Rs5,50,000 crore, an increase of 15.3 per cent from the budget target of Rs4,65,000 crore for the previous fiscal.

The higher allocation for Plan expenditure in the budget is expected to be reflected in the actual spending by the various ministries, finance ministry officials said.

Speaking at 'The Future of Asia' conference organised by Nikkei Inc in Tokyo om 31 May, finance minister Arun Jaitley said the second wave of reforms initiated by the government could spur more investments, especially in the private sector.

''The direction that I have indicated is of more structural reforms, more market-oriented reforms and the future direction of stepping up infrastructure spending, concentrating on rural areas and social security, I think this direction will consistently be maintained,'' he said.

''We have opened out more sectors in the economy. While opening out to both international and domestic investments, we removed the unnecessary conditionalities, we eased the process of doing business in India. It is far easier than what it was years ago,'' he added.

The key drivers of government spending during the period included the ministries of rural development and human resource development as well as infrastructure ministries of highways, power and railways.

Transfers to states also doubled to Rs7,030 crore, while the focus on Swachh Bharat and clean drinking water too have increased.

However, private investments will not come too soon as investors wait for further easing of regulations and a possible easing of interest rates after the term of the current governor of the Reserve Bank Raghuram Rajan ends in September.

As of now, private investment is muted, despite minor cuts in interest rate in the past 18 months, near stability in inflation and currency rate, and a significant improvement in the pace of project approvals.

Meanwhile, economists feel that with most of the Plan expenditure related to the held-back spending on the revenue account, which has no great role in spurring private investment.

Between April and May 2016, the Plan revenue expenditure was Rs74,609 crore, or 18.5 per cent of the full-year estimate, against Rs43,731 crore, or 13.3 per cent of the BE in the last fiscal.

Capital expenditure stood at Rs15,961 crore by 31 May 2016 against Rs18,375 crore during April-May last fiscal.