To keep the economic engine running at full power, the budget must focus on infrastructure, increase capital expenditure

“We have seen the economic recovery this year, but it is necessary to hang on to it and not let it (the momentum) run out of steam. The Center is also in talks with states to ensure that infrastructure projects are deployed on the ground, ”the official said. Calls for tenders for projects under the NIP are expected to accelerate next year. Even though capital spending has been lower than forecast so far, the government expects it to approach the Rs 5.54 lakh crore budgeted for 2021-22 by the end of March.

“The objective of the budget is to maintain a restrictive fiscal position but with the necessary push on spending where it is needed, especially infrastructure projects, which can be done by redefining spending priorities,” said another government official, indicating that the government could opt. for a more moderate fiscal consolidation compared to the current level of 6.8% of gross domestic product.

As a key step in stimulating private sector investment in the infrastructure sector, the government should remove the directive to seek bank guarantees for infrastructure projects and possibly replace them with bonds. This has been one of the main demands of the chambers of industry. ahead of budget. With typically 20% of funds tied up in bank guarantees, this move could potentially free up nearly Rs 8 lakh crore of private sector funds on all NIP projects, according to industry estimates.

“(Among our various budget suggestions), we said to have bonds instead of bank guarantees, because as you spend more on infrastructure, and if you want these kind of jobs and you have to provide bank guarantees, it is a lot of unnecessary costs in the system. The United States and places like that have bonds, just like insurance that you have, that can be kept in case someone goes back on their contracts, ”CII TV chairman Narendran told The Indian Express.

Bank guarantees “unnecessarily increase the costs of the project and will be the main obstacle to the rapid completion of construction under the NIP … It is time to go for revolving bank guarantees or insurance bonds,” said the FICCI in its list of budget suggestions for finance. ministry.

Some of the key reform measures in this year’s budget, particularly with respect to the privatization of two state-owned banks and some key government enterprises, will carry over into next year.

The Centre’s capital expenditure has been slower than the target rate indicated in the budget. Between April and November, the first eight months of this fiscal year, the government committed 49.4% or Rs 2.73 lakh crore of its total budget target for capital spending.

With nominal gross domestic product (GDP) hitting a 17.6% higher level in the first advance estimates released on Friday than the budget level of 14.4% for fiscal year 22, the government is expected to have a larger margin budgetary. Economists said, however, that given the pace of government spending below budget so far for this fiscal year, it is possible that this additional fiscal space could be useful for presenting a smaller budget deficit rather than being used to launch other expenditure during the last quarter of fiscal year 22. The Ministry of Finance has held review meetings with states, departments and ministries to review the status of capital expenditure and the implementation of infrastructure projects.

The 2021-22 Union budget provided for a down payment of Rs 5.54 lakh crore. The government had also earmarked over Rs 2 lakh crore for states and autonomous bodies for their capital spending. The National Infrastructure Pipeline was launched in 2020 with a projected infrastructure investment of around Rs 111 lakh crore in fiscal year 2020-2025 to build infrastructure across the country. The PIN was launched with 6,835 projects, which was then extended to over 9,000 projects covering 34 sub-sectors.