Additional CAPEX to bolster State development

As a show of goodwill and an incentive the Ministry of Finance has permitted 11 states to borrow an additional sum of US$ 2.13bn as they have achieved their set out capital expenditure target for Q1 of FY22. These include Andhra Pradesh, Bihar, Chhattisgarh, Haryana, Kerala, Madhya Pradesh, Manipur, Meghalaya, Nagaland, Rajasthan and Uttarakhand, with the highest additional borrowing room granted is for Andhra Pradesh (US$ 360.55mn), Madhya Pradesh (US$ 351.73mn), Kerala (US$ 306.23mn) and Rajasthan (US$ 353.13mn). The additional capital is 0.25 per cent of the respective Gross State Domestic Product (GSDP) will encourage the States in pushing their capital expenditure further.

Capex (Capital Expenditure) is the money spent by the government on the development of the state’s machinery, health facilities, education etc. To be eligible for any further borrowing, the states are required to achieve 15 percent of their capital expenditure budget for FY’22 by the end of the first quarter, 45 percent by the end of the second quarter, 70 percent by the end of the third quarter and 100 percent by the final and fourth quarter. Out of the net borrowing ceiling (NBC) of 4 percent of GSDP for the states for FY’22 fixed by the Department of Expenditure, 0.5 per cent was designated for incremental capex. The next evaluation of states’ capex will be held in December 2021, followed by the 3^rd review in March 2022 and a final one in June 2022. Any deficit in actual capital expenditure for the year 2021-22 by the State in comparison with the targeted capital expenditure for the year 2021-22, will be adjusted from the borrowing ceiling of the State for the next fiscal year.

GOI has announced significant investments in infrastructure projects to revive the economy post-Covid, for creating demand and boosting employment. According to the Finance Ministry, capex has an augmented effect, bolstering the economy’s productivity, resulting in a higher rate of economic growth.