In a bid to spur public spending, the Ministry of Finance has written to the chief secretaries of all states and Union territories, asking them to increase the pace of their capital spending for the remaining part of 2021-22.
“The ministry is constantly engaging with the chief secretaries of all states so that they can be supported in their efforts to increase capital spending,” a senior finance ministry official told ThePrint on condition of anonymity.
The communication to states through this week is part of an ongoing exercise and a comprehensive review the finance ministry has been undertaking, not just with departments of the central government but also with those of the states, on capex.
Efforts to ensure that states increase capital spending also come at a time when spending by the private sector has continued to be slow. Private capital spending is crucial to revive the economy on a sustainable basis as the Centre’s capital spending is a fraction of overall investment in the economy. In 2020-21, the Centre’s capex was just 8 per cent of the gross fixed capital formation.
Gross fixed capital formation is seen as a proxy for investments in the economy.
Therefore, despite an increase of 26 per cent in the Centre’s capex in 2020-21, gross fixed capital formation contracted 8.6 per cent that year, when measured in nominal terms.