Poor Revenue Growth Restricts Govt Infra Spending

Central Government’s ability to spend on sectors such as infrastructure, roads, highways, exports, logistics, and railways has reduced due to weak revenue growth. Finance ministry peg FY21 revenues to show a contraction of 7 to 8 per cent on account of the collapse in nominal GDP due to COVID-19 induced lockdown. Government’s infra spending is crucial at this time when India is looking at a contracted economic growth rate owing to the Covid-19 pandemic. The tax and non-tax revenues could fall massively as the economy is likely to contract a record 5 per cent according to most estimates against the growth target set at 6-6.5 per cent for the current fiscal that started on April 1. The prime minister has been taking a slew of meetings with top officials from the Finance Ministry, Commerce Ministry, Niti Aayog and PMEAC on the state of the economy and has sought ideas to spur spending in priority areas. Private investment will take time to recover. Therefore, higher spending on public works projects like infrastructure, exports, logistics, and railways is necessary. The spending has to be targeted in such a way that yield results. There are various options that have been discussed in the meetings. Higher market borrowing is not ruled out besides options like higher RBI dividend and deficit monetisation. Many experts are of the view that even if such a portfolio of projects was being thought of as a package for recovery, it would not make much of a difference since the spin-off benefits take at least six months to two years. Besides, the fiscal position of the states and the Centre limited their funding capability.