Govt spending spree ahead as polls near

The proposed announcements may include a ₹1 trillion mission mode project to modernize the railway signalling system, a ₹3 trillion Bharatmala Phase-2 programme to boost connectivity to infrastructure projects such as multi-modal logistics parks and ongoing expressways, a ₹5,000 crore incentive package to encourage the construction of vessels and ships to develop a blue economy, and a viability gap funding (VGF) scheme for coal gasification. A few other financial support initiatives targeting the agricultural and MSME sectors may also be announced.

Ministries, particularly those overseeing infrastructure, social, and farming sectors, have been asked to expedite work on any new policies or programmes being formulated and bring them promptly for cabinet approval and potential launch this year so that they could be launched this year itself and some funding is allocated to them, according to one of the people cited above. In addition, infrastructure ministries have been instructed to conclude capital expenditure for FY24 by December and prepare to take up new projects early next year, the person said, requesting anonymity.

Spokespeople for the ministries of finance, road transport and highways did not respond to queries.

The government has allocated a record capex budget of ₹10 trillion for FY24, aiming to stimulate economic growth through increased public spending and foster private investment. While private investment has picked up in recent months, there is still a need for the government to support the capex cycle in the economy, and several new schemes would keep this aspect in mind, the person said.

The planned ₹1 trillion railway signalling overhaul programme aims at shifting from the present electro-mechanical network to solid-state electronic route relay devices and signals. The overhaul aims to reduce the chances of accidents being triggered by human error and switching or signalling failures.

The programme will be launched as soon as an exhaustive list of vendors to supply equipment required for changing the present equipment is finalized, said the first person cited above, a senior official with the railway ministry, who requested anonymity.

The ministry of railways also did not respond to an earlier query on the proposed scheme.

The proposal to overhaul the system was triggered by the Balasore incident, where three trains collided, resulting in 294 deaths. Initial investigations by the commissioner of railway security have pointed to human error and faulty signalling.

The other big programme for the road sector is expected to link economic corridors of the country and facilitate faster movement on dedicated expressway networks.

The first phase of the Bharatmala project is under implementation, and the government wants to start the second in tandem with the earlier programme so that their completion can be coordinated.

The other big programmes aim to support the country’s evolving manufacturing ecosystem to generate foreign exchange earnings while expanding employment opportunities.

Meanwhile, the government could also offer financial assistance to farmers who are suffering from export bans and inflation.

The Union cabinet on Wednesday cleared a raft of programmes spanning mobility to digital, totalling ₹1.18 trillion, about eight months ahead of general elections.

The government’s additional spending for the new initiatives will be cleared through supplementary demand for grants in the winter session of the parliament.

As things stand, most of the new spending this year is likely to be over and above the budgeted spending as several ministries have already spent half of their allocation in the first four-five months of the year and are on course to complete full allocated spending by December 2023.

However, the extra government spending will not impact the centre’s aim of maintaining a 5.9% fiscal deficit target for FY24.

While the government has announced programmes totalling ₹1.18 trillion recently and may announce more such initiatives in the future, only a portion of the outlay will be earmarked for the current fiscal as most of these programmes are to run for several years, and sometimes up to a decade.

“Today, the government’s revenue collection is strong. So, the only cause of concern (on the fiscal deficit side) is in the divestment front where there hasn’t been much progress made," Madan Sabnavis, chief economist at the Bank of Baroda said.

“In terms of the expenditure, we need to see how much of it is being spent on an annual basis. The government could cut back on other discretionary expenses, maybe a bit on the overall Capex, or cuts involved with (budgets of) certain ministries to accommodate the expenditure," Sabnavis said, adding that as a result, the fiscal deficit target may not be impacted.