Watch | 'Rs 10 Lakh Crore Capex Claim Misleading, Unlikely to be Fully Used'

In an interview with Karan Thapar, Pronab Sen said the budget will address the issue of unemployment only if it can create new MSMEs.

In an interview that punctures holes in the initial impression of the budget and strips away some of its glitz and presentational glamour, India’s former Chief Statistician Pronab Sen says that the budget announcement of a 33% increase in capital investment by the government to Rs 10 lakh crore, amounting to 3.3% of the GDP, is misleading.

He says a substantial part of this increase in capex has happened by reducing the capex of PSUs. Second, the Rs 1.3 lakh crore going to the states as 50-year loans may not be an increase in capex but simply a change in the source of its funding. Third, some of this Rs 10 lakh crore may not be capex at all depending upon how BSNL and BPCL utilise the Rs 83,000 crore, which is 8.3% of the Rs 10 lakh, allocated to them. It’s quite possible these two companies may utilise this as budgetary support rather than capex. Fourth, professor Sen says that it’s almost certain that perhaps up to 50% of the 2.4 lakh crore allocation to the railways and the 1.62 lakh crore for highways may not be used at all and could return to the government.

In a 40-minute interview with Karan Thapar for The Wire, Pronab Sen – presently the country director of the International Growth Centre – agreed that the announcement that government capex has risen to Rs 10 lakh crore serves two purposes. First, it captured the headlines, cheered the stock market and, therefore, enhanced appreciation of the budget. Second, because a large proportion of it is likely not to be utilised, it will provide sufficient cushioning if during the course of the financial year government spending on items like NREGA and fertilizer subsidies has to be increased. That, in turn, would help protect the 5.9% fiscal deficit target, which has been achieved by slashing next year’s expenditure.

Professor Sen expressed doubts about whether the government’s hope to revive private investment with its enhanced capital expenditure allocation will materialise. A lot depends, he said, on the revival of the MSME sector and, within that, a lot critically depends on whether new MSMEs are created to replace the approximately 20% that died and disappeared during the pandemic. That, in turn, he said depends upon whether finance minister Nirmala Sitharaman has done enough to revive demand by putting money in people’s pockets. The big question here is whether people who have incomes and are spending them will spend more as a result of her taxation measures. Sen said that the roughly Rs 4 lakh crore capex going to the railways and highways may not revive demand as effectively as the government hopes both because large proportions of this may not be utilised and also because it may not create a lot of jobs.

Speaking about employment and whether this budget will lead to the creation of jobs, the economist said a lot depends upon whether new MSMEs are created. They are the main providers of jobs in the economy.

Ultimately, professor Sen said, the government’s hopes of reviving private investment depend on whether the MSME sector revives and whether that in turn creates new jobs which, in turn, put money in people’s pockets which they can spend and thus create demand. It’s that demand that will provide the incentive to the private sector to invest.

Watch the full interview to understand and appreciate Pronab Sen’s viewpoint.