Capital account

Dependence on govt expenditure for growth must be reduced

Government capital expenditure has been a significant growth driver in the post-pandemic period, prompting suggestions, particularly from industry, that the Union government should further increase the allocation in the upcoming full Budget for this financial year. However, there are limits to which government capital expenditure can push growth, primarily because of two reasons. First, the government has to progressively bring down the fiscal deficit to a more manageable level. Second, there are systemic capacity limits in terms of absorption. More broadly, increasing capital expenditure should not be an end in itself. While capital expenditure will add to output, benefits will be higher if projects are selected on merit and potential. Therefore, a balance is necessary. While the Centre has been spending the allocated sum, the states are lagging-indicating limits to absorption capacity.