2 Feb 2017

Strong Optics of Rise in Capex – Expenditure Budget 2017 -18

The Union Budget 2017-18 presented by the FM Arun Jaitley to the Parliament on the 1st of February saw the government deliver a good expenditure budget, with increase in capital expenditure and keeping down overall expenditure.

author dp
Team INRBonds
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The Union Budget 2017-18  presented by the FM Arun Jaitley to the Parliament on the 1st of February saw the government deliver a good expenditure budget, with increase in capital expenditure and keeping down overall expenditure. The budget also did away with classification of plan and non plan expenditure. Overall the classification is revenue and capital expenditure.

The government has increased expenditure on Transportation Sector  by 8.2% year on year to Rs 2412 billion with railways receiving Rs 1310 billion and roads (highways) receiving Rs 649 billion. Total allocation towards infrastructure is Rs 3961 billion, which is 18% of total expenditure.

The expenditure budget also saw a rural thrust with many announcements for farmers and the rural population. The rural employment generation scheme, MNREGA saw an allocation of Rs 480 billion, up by 24.7% year on year. Irrigation fund of NABARD was doubled to Rs 400 billion. Rural sector accounts for around 15% of total expenditure.

The major heads of expenditure of the government are Interest Payments that account for 24% of total expenditure, defense (13%), Grants to States 19%, Food Subsidy 7% and pensions 6%. Last year the government had an outgo of around Rs 1000 billion on 7th pay commission implementation.

Oil prices at around USD 50/bbl coupled with almost complete pass through of petrol and diesel prices have helped keep down petroleum subsidy and maintain fertilizer subsidy.

Interest costs will rise as government debt rises every year due to fiscal deficit and interest costs have risen by  8.3%. Defence spending has risen by 5.8% though allocation for Bank Recapitalization at Rs 100 billion from Rs 250 billion last year is low in the face of weak balance sheets of banks.

Government, until the last budget, used to classify expenditure as Plan and Non Plan Expenditure. This budget did away with this classification as the Planning Commission has been replaced by Niti Aayog, which largely formulates policies for economic growth.

Overall spending is higher by 6.57%, which is easily manageable as revenue growth of 6.6% is easily achieved.