Spending on roads, agriculture pegged at Rs 17.77 lakh crore over high tax collections

In the backdrop of higher tax collections, the Finance Ministry has asked ministries and departments to begin spending as it looks to lift growth with private sector investment yet to get underway.

The government got enough room for expenditure after the indirect tax revenue grew 39.2% in April-May.

"We have asked ministries to front load expenditure," a finance ministry official told Economic Times.

The ministries have been told to focus on roads and shipping, rural development and agriculture. In the absence of any other stimulus and the
Reserve Bank of India's (RBI) conservative stance, the finance ministry is of the view that a spending boost is necessary.

The RBI has since January cut the repo rate by 75 basis points and is regarded by its critics as being behind the curve, especially in relation to counterparts in Asia that have opted for aggressive cuts to boost growth.

The financial daily reported the government has been quick to get off the starting blocks with April spending at a two-decade high of 8.7% of the amount budgeted for the entire fiscal year. This pattern is set to continue.

"Early spending can give the much needed impetus to growth," the official told ET.

For FY16, total expenditure has been pegged at Rs 17.77 lakh crore. Government spending in the first month of the last financial year was 6.7% of the full-year amount. The past two financial years have seen a squeeze on spending, particularly plan expenditure, as revenue remained under pressure and the government could not allow any slippage on the fiscal consolidation front.

"Front loading of expenditure will lead to private sector soon following," DK Pant, chief economist at India Rating, told ET.

Meanwhile, the road ministry is focusing on building highways through engineering, procurement and construction (EPC) contracts.
The government had changed the fiscal consolidation roadmap in the February budget by delaying the goal of containing the fiscal deficit at 3% of GDP by a year to FY18.

The idea was to use the headroom created to boost capital expenditure and fund infrastructure projects. The fiscal deficit in FY16 is pegged at 3.9% of GDP and the government is confident that it will be able to meet this target comfortably. Rationalisation of fuel subsidies will provide some help.

(Image: Indiatimes)