No cuts in capital spending in FY23, says Finance Secretary

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No cuts in capital spending in FY23, says Finance Secretary

Finance secretary TV Somanathan said that the government will not cut capital expenditure in the current fiscal year, despite suggestions by experts that fiscal policy should aid monetary policy in managing inflation. He said that capital investment is needed for the long-term growth of the economy and short-term developments should not distract from that goal. The government has budgeted 7.5 lakh crore capital expenditure in FY 23 compared to a revised 6.03 lakh crore capex in FY 22. Somanathan said we will continue with the committed capex. In a surprise move, the Reserve Bank of India RBI raised the repo rate by 0.4 percentage point to 4.4% earlier in the month to tame runaway inflation that hit an eight-year high of 7.79% in April. The Centre has budgeted a deficit of 6.8% of GDP in FY 23 but with food and fertiliser subsidies likely to be higher owing to the Ukraine conflict, the fiscal deficit may exceed the target. If we curtail capex in view of the short-term issues, we will hurt the long-term growth. Somanathan said there will be no budgetary constraints on capital spending and that it will affect committed projects in multiple sectors such as roads, railways and roads. The fiscal policy will in general support the RBI in managing inflation, as capex may not be cut, according to other sources in the government. One official said that there could be a redeployment of some revenue expenditure, which will ensure that spending does not rise sharply and undermines the RBI's monetary policy. The official said it was not a dire situation. There could be a cut in revenue expenditure but not with the same intensity. There is a debate among policy makers about fuel tax cuts, officials said. They might cool retail prices in the short run but increase demand elsewhere, swell borrowing, and run counter to the RBI's efforts to push down demand and cool inflation with monetary tightening. After considering all views at the highest level, a final decision will be made on any tax cut. The central bank seems to favor a reduction in taxes on fuels. Central and state taxes are buoyant and likely to surpass any rise in subsidy costs because of the Ukraine crisis, giving them space to cut taxes on fuels. The monetary policy committee of the RBI noted in the minutes of the last review released on Wednesday that countercyclical fuel taxes are necessary to prevent a ratchet effect on inflation.