budget: massive capital expenditure to attract private investment by creating demand and stimulating green activity: finance secretary

NEW DELHI: The government’s massive capital expenditure program outlined in the 2022 budget will help attract private investment by invigorating economic activities and creating demand, Finance Secretary TV Somanathan has said.
Finance Minister Nirmala Sitharaman has increased capital expenditure (capex) by 35.4% for the financial year 2022-23 to Rs 7.5 lakh crore to continue the recovery of the pandemic-stricken economy thanks to to public investment. This year’s capex is set at Rs 5.5 lakh crore.
Spending on the construction of multimodal logistics parks, metro systems, highways and trains is expected to create demand for the private sector, as all projects must be implemented by contractors.
In an interview with PTI, Somanathan said that over the past two years, physical restrictions due to the Covid pandemic have weighed on demand and delayed private investment.
“The hope is that due to the heavy capital expenditure program by the end of this fiscal year, we hope that private capital investments will start to come in droves. That is our hope,” Somanathan said.
Low private investment is a non-economic problem, which cannot be solved by economic remedies, he said, adding that it will be solved when activities start and demand picks up.
The economic survey pegged India’s economic growth at 8-8.5% for the current fiscal year, while the budget estimated nominal GDP growth at 11.1%.
In her post-budget interaction with industry leaders, Finance Minister Nirmala Sitharaman on Saturday urged India Inc to take advantage of the announcements made in the budget and “rapidly” increase spending.
Stating that government investment spending has been increased in the budget with the twin objectives of supporting sustained growth and attracting private investment, the Minister asserted that now was the right time for investment and that the industry should not miss this opportunity.
Explaining the rationale for conservative nominal GDP growth, Somanathan said the weighted average of wholesale and retail prices was taken into account to arrive at the 11-12% range. Wholesale price inflation is expected to be lower in the next fiscal year, mainly due to a high base. Nominal GDP is obtained by adding the GDP deflator to the estimated real economic growth.
“Wholesale prices in the current year have risen much faster than the CPI. Normally these trends next year, we will probably see WPI lower than the CPI due to the high base effect. In this case, the deflator would be 3-4%.We put nominal GDP in the 11-12% range.We took the lowest conservative rate (of 8% real GDP growth).But if the deflator is higher, nominal growth would be higher,” he said.

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