Managing expenditure

Not just revenue spending, even capital expenditure needs to be closely monitored

- A K BHATTACHARYA

There are many ways of evaluating the rise in the Union government's capital expenditure over the last few years. Such an evaluation has become important because the current financial year has seen a significant trend change. The Union government’s capital expenditure in 2025-26 will grow by just 4.2 per cent, compared to high double-digit growth that was recorded in each of the previous five years. Even the effective capital expenditure, which includes grants in aid for creating capital assets, will grow by less than 6 per cent this year, according to the Budget presented earlier this month.

A deceleration of this extent in the Union government's capital expenditure is quite stark, particularly when compared with the unusually large annual increases in the last five years. Note that such a rate of increase was a significant improvement over what happened in the first six years after the Narendra Modi government was formed in May 2014.

Indeed, between 2014-15 and 2019-20, the government’s capital expenditure grew in double digits in only three years (the highest being 29 per cent in 2015-16). Two of these years saw only a single-digit increase and in one year — in 2017-18 — capital expenditure actually declined by 7.5 per cent. Unsurprisingly, as a percentage of gross domestic product (GDP), capital expenditure during this period of 2014-2020 hovered between 1.5 per cent and 1.8 percent.

Importantly, the economic reforms of the 1990s were accompanied by a strong dose of capital expenditure. In most years during the 1990s, capital expenditure stayed elevated at well over 3 per cent of GDP. There was a gradual decline from 1999-2000, barring some occasional bursts between 2003 and 2005. Remarkably, between 2005 and 2020, a period of 15 years, capital expenditure crossed 2 per cent of GDP only twice — in 2007-08 and in 2010-11.