Union Budgets 2014 to 2024 –
Article 6: The Real Reason Behind Increase in Capital Expenditure
Hike in Capital Expenditure for the Fourth Year
Union Budget documents show that the budget outlay this year is just 7.4 percent above last year’s revised estimates — which means the increase is marginal in real terms. A better comparative assessment of the increase can be made if we compare the budgetary outlay as a percentage of GDP for various years. We find that this has consistently fallen for the last 4 years (since 2020–21). This year, the budget expenditure as a percentage of GDP is lower than that for 2020–21 by nearly 3 percentage points — that is huge (Table 1)!
Table 1: Budget Outlays, 2020–21 to 2024–25 (Rs. crore) [1]
| 2020–21 A | 2021–22 A | 2022–23 A | 2023–24 RE | 2024–25 BE | |
| Budget Expenditure | 35,09,836 | 37,93,801 | 41,93,157 | 44,90,486 | 48,20,512 |
| Budget Exp. as % of GDP | 17.68 | 16.08 | 15.56 | 15.20 | 14.77 |
Within the limited budget outlay, Finance Minister Nirmala Sitharaman has announced a hike in capital expenditure (or capex) — of 17.1 percent. This is the fourth year in succession that she has hiked capex. But the increase in budget outlay during these past four years has been significantly less than the increase in capital expenditure. Consequently, capital expenditure as a percentage of budget outlay has gone up steadily from 12.1 percent in 2020–21 A and 15.6 percent in 2021–22 A, to 23 percent in this year’s budget estimate (see Table 2).
Table 2: Budget Outlay and Capital Expenditure, 2020–21 to 2024–25 (Rs. crore)[2]
| 2020–21 A | 2021–22 A | 2022–23 A | 2023–24 RE | 2024–25BE | |
| Capital Expenditure (Capex) | 4,26,317 | 5,92,874 | 7,40,025 | 9,50,246 | 11,11,111 |
| Increase in Capex over previous year | 39.1% | 24.8% | 28.4% | 16.9% | |
| Budget Outlay | 35,09,836 | 37,93,801 | 41,93,157 | 44,90,486 | 48,20,512 |
| Increase in Budget Outlay over previous year | 8.1% | 10.5% | 7.1% | 7.4% | |
| Capex as % of Budget Outlay | 12.1% | 15.6% | 17.6% | 21.2% | 23% |
| Capex as % of GDP | 2.1% | 2.5% | 2.7% | 3.2% | 3.4% |
The data in Table 2 is visualised in Chart 1. The Chart highlights that though capex and budget outlay have both increased during the past 4 years, increase in capital expenditure has taken place at a much faster rate than the increase in budget expenditure.
Chart 1: Capex, Budget Outlay, and Capex as % of Budget Outlay, 2020–21 to 2024–25 (Rs. lakh crore)
The FM claims that “the massive tripling of the capital expenditure outlay in the past 4 years” has had a “huge multiplier impact on economic growth and employment creation”.[3]
Both these claims are part of the tapestry of lies the Modi Government has been weaving to hide the reality of the economic crisis gripping the country. Contrary to the claims of the Finance Minister, the huge increase in capital expenditure over the past 4 years has not had any “huge multiplier effect” on the economy — neither on “economic growth” nor on “employment creation”. In the first article of this budget series, we have shown that the Modi Government’s GDP growth rate figures are dubious; and that the actual GDP figures (at current prices) are probably around 40–45 percent below the official figures. In Article 2 of this budget series, we have given extensive data to show that the country is facing an unprecedented unemployment crisis, the worst in several decades — which means that the increase in capex has not led to any employment generation too.
That an increase in capex, without increasing budget outlay, is not going to lead to economic growth and employment generation — is actually simple economics common sense. Let us explain.
Will Capex Lead to Economic Growth
We have given considerable data in Articles 1–3 (published in previous issues of Janata) showing that:
- large masses of the people are suffering from poverty and unemployment, and only a tiny section of the population has significant purchasing power;
- the increasing economic distress being faced by the majority of the people during the past decade can also be observed from data put out by the RBI which shows that net financial savings of households have fallen to a record low, which means that people are drawing down on savings to fund consumption.
And so we concluded that there is not much scope in the economy for an increase in demand, and that demand will only increase if the government increases its budgetary expenditure and implements measures to put purchasing power in the hands of the common people. That would require the government to increase its social sector expenditures, take concrete measures to create jobs, increase subsidies for agriculture and MSMEs, etc. — all of which require the government to increase its budgetary outlay. If the government does not take steps to increase demand, that is, if the government does not significantly increase its budget expenditure, and only increases its capital expenditure, and hopes that this is enough to incentivise private corporations to increase their investment, it is not going to happen. Why will private capitalists increase investment and hence production, if there is no increase in demand? And if there is no increase in investment, obviously there is going to be no job generation.
This can also be understood by looking at the state of the economy from another angle. Industry has been suffering from excess investment for the past more than a decade; this is reflected in the fact that capacity utilisation in industry been hovering at around 75 percent. New investments take place only when capacity utilisation reaches close to 90 percent.[4] In such a situation, when private industry is already suffering from over-capacity, even if the government gives incentives to the capitalists in the form of increasing capex in the hope that they would increase their investment, that is not going to fructify; the capitalists are going to simply pocket the subsidy and increase their profits.
This is precisely what is happening.
Industrial Production Stagnant
According to the latest figures released by the Ministry of Statistics and Programme Implementation (MoSPI), the increase in capex has not led to any significant pickup in industrial production. Index of Industrial Production (IIP) data, which tracks growth in multiple industry groups within the Indian economy, shows that industrial growth in 2023–24 (over the previous year) was 5.9 percent, marginally higher than the 5.2 percent growth clocked in 2022–23. The latest Quick Estimates of Index of Industrial Production data released by MoSPI show that industrial growth rate has slowed down again — it grew at 5.2 percent for the first four months of 2024–25 (April to July) (over the corresponding period of the previous year). Overall, the average annual industrial growth during the Modi years (2014–15 to 2023–24) has been just 3.6 percent. This is less than half the industrial growth rate clocked during the UPA years — the average annual industrial growth rate was 8 percent over the period 2004–05 to 2013–14 (as per IIP data).[5]
Industry comprises of three sectors — mining, manufacturing, and electricity. Of these, IIP data show that the manufacturing sector has grown at only 5.5 percent in 2023–24 over 2022–23. The data also shows a modest average annual growth of 3.1 percent in the manufacturing sector over the Modi years 2014–15 to 2023–24.[6] This is way below the year-on-year growth target of 12–14 percent set by Prime Minister Modi in September 2014, at the time of the launch of the ambitious ‘Make in India’ programme whose ostensible aim was to transform India into a global manufacturing hub. The programme had set a target of catapulting the Indian manufacturing sector to 25 percent of GDP by 2020, from 16.3 percent in 2014. The target year was later pushed back first to 2022 and now to 2025.[7] But in actuality, the share of manufacturing in GDP has fallen to 14.3 percent in 2022–23 and 14.1 percent in 2023–24.[8]
The supply-side economics that the FM and her economic advisors believe in is actually humbug. Without taking concrete measures to boost demand, just giving myriad subsidies to corporate houses — from tax concessions and loan write-offs to government grants under the rubric of capital expenditure — is not going to lead to increased private investment. Probably out of exasperation that all these massive subsidies were not leading to larger industrial investment, FM Nirmala Sitharaman, in a speech in September 2022, asked industry captains what is holding them back from investing in manufacturing? Modi and his Cabinet Ministers probably believe that the solution to every problem can be found by invoking ‘Bajrang Bali’. And so the FM exhorted India Inc., “You don’t believe in your own capacity, in your own strength and there has got to be someone standing next to you and say you are Hanuman, do it? Who is that person who is going to tell Hanuman? It can’t certainly be the government.”[9]
Then Why the Increase in Capex?
In her budget speech, the Finance Minister lays out the government’s plan for the future: “We will endeavour to maintain strong fiscal support for infrastructure over the next 5 years …” This therefore is the main strategy of the Modi Government to boost economic growth and create jobs.
All the data given above, that prove that increase in capex is not going to create jobs, nor will it lead to sustainable economic growth, are official data. The data unequivocally debunks the claims being made by the FM about the benefits of increased capital expenditure to the economy,
Then why is the FM increasing capex so hugely? The real reason is — it is yet one more way of transferring public funds to big corporate houses.[10] Under the rubric of capital expenditure, the Modi Government is actually doling out subsidies to private corporations in the name of attracting private investment in the infrastructure sector — such projects are eulogised as public–private–partnerships (or PPP). The argument given by the Modi Government for these subsidies is that investments in infrastructure are not very profitable, and so it is necessary for the government to finance a part of the project cost so as to make it attractive for the private investor to invest. This is also called viability-gap funding (or VGF) — which means that the government will fund the difference between the expected rate-of-return on investment by the private player and the actual profit earned by it. The VGF is often as much as 40 percent of the total project cost, sometimes even more, and is often paid upfront (that is, in advance). While the risks in all these PPP projects are borne by the government, the profits are all pocketed by the private partner. What a partnership![11]
Table 3: Capital Expenditure in the Union Budget, 2020–21 to 2024–25 (Rs. crore)[12]
| 2020–21 A | 2021–22 A | 2022–23 A | 2023–24 RE | 2024–25 BE | |
| Budget Capital Expenditure (3) | 4,26,317 | 5,92,874 | 7,40,025 | 9,50,246 | 11,11,111 |
| of which: | |||||
| Ministry of Railways (1) | 1,17,271 | 1,37,100 | 1,59,256 | 2,40,000 | 2,52,000 |
| Ministry of Road Transport and Highways (2) | 1,13,312 | 1,87,744 | 2,05,986 | 2,64,526 | 2,72,241 |
| (1+2) as % of (3) | 54.1% | 54.8% | 49.4% | 53.1% | 47.2% |
The ministries where the maximum capital expenditure is taking place are the Ministry of Railways and the Ministry of Road Transport and Highways. These are precisely the ministries where private corporate houses are investing in a big way. Thus, nearly 25 percent of the budgetary capex is for Ministry of Road Transport and Highways (Table 3). But the government does not build many roads and highways anymore! Most of the expressways, high speed roads, flyovers, etc. being built across the country are being built by the private sector, with 40 percent or even more of the project cost being financed by the Central government in the name of viability-gap funding. This only means that most of the capital expenditure shown in the budget outlay for Ministry of Road Transport and Highways is being transferred to the private sector as grants! [13]
Likewise, another 25 percent of the budgetary capital expenditure is going to the Ministry of Railways. An article in the Financial Express explains how this money is being spent: “The government is reworking the terms of the public–private–partnership (PPP) model for assorted railway projects, to make it more attractive to private investors and bridge a viability gap perceived by sections of investors. The new PPP model will also include a hybrid model on the lines of the reasonably successful one in the highway sector, where the government makes upfront payment of 40 percent of the project cost to the developer under the build–operate–transfer (BOT) mechanism.”[14] Since the Indian Railways is gigantic, the government is chopping it up into small parts, and initially privatising those parts which would be most profitable for the private investors. One such part being privatised is 16 railway stations, in the name of modernisation. A report in the business newspaper Mint stated: “Indian Railways is exploring a new public–private–partnership (PPP) model to attract private investment to redevelop railway stations, two people aware of the development said. Under this model, investors would receive up to 40 percent of the total project cost as viability-gap funding (VGF) and be allowed to use the space above platforms and tracks commercially.”[15]
And Yet, Crumbling Infrastructure
The capital expenditure undertaken by the Modi Government during its ten years in power (from 2014–15 to 2024–25 BE) totals Rs. 54.6 lakh crore.[16] Airports, seaports, highways and railways are being built / upgraded at breakneck speed. Our self-obsessed PM Modi himself cut the ribbons for most of these glitzy projects.
But many of these projects have suffered breakdowns, many within just weeks of their inauguration by PM Modi. That shouldn’t be surprising, considering the cosy relationship between the country’s biggest corporate houses and the BJP, some of which was exposed by the Electoral Bond scam. The facts that have come to light following the Supreme Court judgement asking the government to make public the full details of the scheme reveal that in return for Electoral Bond donations of a few hundred crore rupees, the BJP has allowed corporate houses to cut corners in executing infrastructural projects.[17]
On 28 June 2024, the outdoor metal canopy of Terminal 1 of the Delhi airport collapsed following heavy rains. The airport had been renovated and proudly inaugurated by PM Narendra Modi just three months ago, on March 10. Just a few days before this, the airports at Jabalpur (also inaugurated by Modi in March), Lucknow, and Rajkot also suffered canopy collapses due to rainfall. The ceiling at the Guwahati airport collapsed on March 31. In July last year, the ceiling of the newly built Veer Savarkar International Airport in Port Blair collapsed within a week of its inauguration by PM Modi. There are also reports of rainwater leakages in several airports across the country.[18]
As mentioned above, one-fourth of the capital investment is targeted at building highways. But the quality of construction is so shoddy that these highways have become a nightmare for motorists. In July 2022, parts of the Bundelkhand Expressway, built at a cost of Rs. 15,000 crore, caved in within a week of its inauguration by Modi.[19] In October 2022, portions of the 341 km Purvanchal Expressway gave way, months after Modi inaugurated the highway. In July 2023, a portion of the highway caved in again. The Rs. 22,500 crore highway is considered to be a ‘dream project’ of the Yogi Adityanath-led UP government; while inaugurating it on 16 November 2021, PM Modi had said “this is the development and progress of UP.” The Sohna highway in Haryana, also inaugurated by Modi, has suffered several cave-ins in the last one year. The country’s longest expressway, the Delhi–Mumbai Expressway, being built at a cost of Rs. 90,000 crore, developed a deep crater in the middle of the road in September this year in Rajasthan’s Dausa district.[20] A recent report published in the Hindustan Times about the condition of three highways considered to be vital gateways to Mumbai — the Mumbai–Ahmedabad, Mumbai–Nashik and Mumbai–Goa highways — points out that each of them are marked with potholed-ridden stretches that run for kilometres, badly constructed and maintained roads, shoddy concretisation and other incomplete work.[21]
Another one-fourth of the capital investment is taking place in the railways. And yet, because of distorted priorities, the infrastructure of the Indian railways is crumbling. The Modi government has been obsessed with investing in premium trains — with Modi flagging off more and more Vande Bharat and NaMo Bharat trains — and showpiece railway stations with malls and luxury hotels, each of which also the Prime Minister must inaugurate. Another pet Modi project that is swallowing up gargantuan sums of money is the bullet train project between Mumbai and Ahmedabad; it is now expected to cost Rs. 1.65 lakh crore (other estimates peg this at Rs. 2 lakh crore).[22]
Consequently, railway maintenance and safety has suffered neglect. A 2022 report by the Comptroller and Auditor General says that investment in track renewals is shrinking. But the Modi Government is unperturbed. Union Budget documents show that the track renewal expense of the railways both as a percentage of total rail revenue and total rail capex has declined during the past 3 years (2022–23 A to 2024–25 BE).[23] The railways also suffer from a huge shortage of staff, especially safety related staff. According to information presented in Parliament, 3.12 lakh posts in the railways are lying vacant as of June 2023 with more than 2.67 lakh of them in the safety category.[24]
The government’s obsession with premium trains has also resulted in very slow deployment of India’s Automatic Train Protection (ATP) system Kavach across the railway network.[25] With the result that there have been on average 44 serious train accidents every year — three to four every month — during the past five years. According to the National Crime Records Bureau, 2.6 lakh people died in rail accidents during the past 10 years (this number includes those who fell off trains and those run over by the trains).[26]
The neglect of rail track maintenance is also boomeranging on the speed of premium trains. Following the recent accident involving the Kanchanjunga Express, the railways has reduced the speed of all premium trains, including the Vande Bharat trains, to 130 kmph, a speed limit that was achieved more than 30 years ago! [27]
Notes
1. Budget data taken from: Budget at a Glance, Union Budget documents, various years; GDP figures are the latest figures released by the CSO as of 31 May 2024, as given in Article 1, endnote 38.
2. Data taken from: Union Budget documents, various years.
3. Nirmala Sitharaman, Budget Speech, Union Budget 2024–25 and Union Budget 2024–25 (Interim) documents, https://www.indiabudget.gov.in.
4. “Capacity Utilisation Improves to 74% in Sept 2023 Quarter: RBI OBICUS Survey”, CMIE, 8 February 2024, https://www.cmie.com; M.K. Venu, “Is This a Lost Decade for Indian Manufacturing?”, 17 January 2023, https://thewire.in.
5. Our calculation, from figures given in: Handbook of Statistics on Indian Economy 2023–24, Table 27: Index Numbers of Industrial Production, https://rbidocs.rbi.org.in; Quick Estimate of Index of Industrial Production and Use-Based Index for the Month of July 2024, Press Release, 12 September 2024, https://www.mospi.gov.in.
6. Ibid.
7. Jayakhosh Chidambaran, “Make in India: An Abysmal Failure”, 22 January 2024, https://madrascourier.com; “India iPhone Breakthrough Masks Struggle to Boost Manufacturing”, Bloomberg, 13 January 2023, https://www.livemint.com.
8. Data on share of manufacturing sector in GDP taken from: Press Note on Second Advance Estimates of National Income 2023–24 …, MoSPI, 29 February 2024, op. cit.
9. “What Is Holding Back Your Investments: FM Asks India Inc”, 13 September 2022, https://www.thehindubusinessline.com.
10. As mentioned in the previous article, the Modi Government has been giving huge tax concessions, and transferring huge sums of public wealth and resources, to the corporate houses. We discuss this issue in detail in Article 16 of this budget series (to be published later in Janata Weekly).
11. Prasanna Mohanty, “Welcome to ‘Stressed’ PPP Projects, the 2nd Time Round”, 16 May 2022, https://www.fortuneindia.com.
12. Data taken from: Union Budget documents, various years.
13. See for instance: “Building Highways: Build-Operate-Transfer (Toll) Model to be Tweaked Further to Regenerate Interest of Investors”, 8 May 2023, https://www.financialexpress.com.
14. “Railway PPP Model Being Reworked to Lure Investors”, 15 December 2022, https://www.financialexpress.com.
15. Railways Eyes Private Funding to Redevelop 15 Stations”, 27 February 2023, https://www.livemint.com.
16. Our calculation, made from Union Budget documents.
17. We discuss the Electoral Bonds scheme in a later Article 16 of this budget series. See also our article: Neeraj Jain, “The Electoral Bond Scam: The Biggest Scam Since Independence”, 9 May 2024, https://countercurrents.org.
18. P. Raman, “Crumbling Infrastructure: A Gift of the Gujarat Model of Neta-Babu-Business Nexus”, 23 July 2024, https://thewire.in; Carole Dieterich, “India’s Infrastructures are Collapsing One After the Other”, 19 July 2024, https://www.lemonde.fr; “Record Number of Airport Structural Collapses in 2024, Highest in Six Years”, 6 July 2024, https://www.thehindubusinessline.com; “Row Over Damage of Newly Inaugurated Airport Building in Port Blair”, 24 July 2023, https://www.thehindu.com.
19. “Days After Inauguration by PM Modi, Bundelkhand Expressway Caves In Due to Rain”, The Quint, 22 July 2022, https://www.thequint.com.
20. P. Raman, “Crumbling Infrastructure: A Gift of the Gujarat Model of Neta-Babu-Business Nexus”, op. cit.; Abdul Alim Jafri, “UP: Modi-Yogi ‘Dream Project’ Purvanchal Expressway Caves in Within 10 Months of Inauguration”, 7 October 2022, https://www.newsclick.in; Abhishek Behl, “Gurugram: Sohna Road Caves in at Same Spot for Third Time in a Year”, 23 September 2024, https://www.hindustantimes.com; “Video: Portion of Delhi-Mumbai Expressway in Rajasthan’s Dausa Caves in”, 17 September 2024, https://www.indiatoday.in.
21. “How 3 Highways Linking Mumbai to the Rest of India Have Turned Into Deathtraps”, 20 July 2024, https://www.hindustantimes.com.
22. Maitri Porecha, “Delayed Deadlines, Inflated Costs of the Bullet Train Makes it a Costly Liability, Alleges Opposition”, 21 May 2024, https://www.thehindu.com.
23. For more facts on this, see: “India’s Train Derailments Surge: 19 Incidents in 7 Months Amid Declining Track Renewal Spending”, 1 August 2024, https://www.thehindubusinessline.com.
24. “Railway Modernisation, Privatisation at the Cost of Common Commuters, Safety”, People’s Commission on Public Sector and Public Services, 16 July 2023, https://janataweekly.org.
25. This is discussed in detail here: Vignesh Radhakrishnan, Sambavi Parthasarathy, “At Current Pace, Kavach Implementation in Railways Will Take at Least 50 Years”, 28 June 2024, https://www.thehindu.com.
26. P. Raman, “Crumbling Infrastructure: A Gift of the Gujarat Model of Neta-Babu-Business Nexus”, op. cit.
27. R.K. Radhakrishnan, “Indian Railways: On the Wrong Track”, 6 July 2024, https://frontline.thehindu.com.
(Neeraj Jain is a social–political activist with an activist group called Lokayat in Pune, and is also the Associate Editor of Janata Weekly, a weekly print magazine and blog published from Mumbai. He is the author of several books, including ‘Globalisation or Recolonisation?’ and ‘Education Under Globalisation: Burial of the Constitutional Dream’.)