"We've reached the level of capex we can sustain for some time"

Union Finance Secretary T.V. Somanathan on the economic situation, external challenges, and the Interim Budget

- Surabhi

Union Finance Secretary T.V. Somanathan, a 1987-batch IAS officer from the Tamil Nadu cadre, is an expert policymaker with previous stints in the Prime Minister's Office and as Director at the World Bank, Washington D.C. A PhD in Economics and a chartered accountant, cost accountant and company secretary by training, he is closely involved in the preparation of the Union Budget every year. In an interview with Business Today's Surabhi, the 58-year-old says that the projections in the Interim Budget this year are as realistic and credible as if it were a regular Budget. Somanathan, who is also Secretary, Department of Expenditure, is confident that rural consumption will pick up this fiscal and explains why the rate on the popular public provident fund has been kept unchanged for several quarters, given its high post-tax returns. Edited excerpts:

Q: The Interim Budget has increased capital expenditure by 11.1% for FY25. Effective capital expenditure is estimated to grow by 17.7% to  ₹15.3 lakh crore. How much more can the government invest in capital expenditure?

A: I think that we have probably reached the level of capital expenditure as a percentage of GDP that we can sustain for some time. I don't think it is likely to increase much as a share of GDP. One can probably expect capital expenditure to increase at or slightly above the rate of nominal GDP growth. Beyond that, I don't know whether that will be fiscally sustainable. Now that we have reached a fairly good level of 3.4% of GDP as capital expenditure, maintaining that could be a decent objective. The GDP would also grow.

Q: Is the government more confident now about a recovery in private sector capital investments?