Ever since the Central Statistics Office (CSO) put out India’s new GDP series (base year 2011-12) in 2015, the debate over India’s actual growth numbers has been relentless.

Recently, when the CSO released the historical estimates for India’s new GDP series (back series data from FY06 to FY12), which showed growth numbers prior to 2011 revised down, there was yet another round of bickering and squabbling over the numbers.

The substantial bump up in GDP numbers for FY17 and FY18, just a day before the Budget has only complicated matters further.

But if one were to take the final figures put out by the CSO at face value for argument sake, the growth under the Modi government over the last five years is not that sombre. Despite demonetisation and GST-related disruptions, the final tally which shows average real GDP growth of 7.6 per cent for the NDA government against 6.7 per cent growth for the UPA II regime, suggests that the Modi government may not have done too badly.

But it may be too hard to take these numbers without a pinch of salt. After all other leading indicators have suggested more pain on the ground. Bank credit for instance, slipped to a multi-year low of 5 per cent in FY17.

Private consumption and government expenditure has slowed down over the past two years, a key concern for growth.

What has worked in favour of the government though, has been the sharp fall in inflation. While from an overall macro perspective, this is a welcome trend, it throws up other concerns. This is because much of the decline in inflation has been due to the collapse of food prices, which has resulted in deep-rooted stress for the farm sector.

Interestingly, the Centre has been raising its rural spend in the last two years. From 5.5 per cent of the total expenditure, the share of rural spending has gone up to 7.3 per cent in FY18; in the current FY19 fiscal, the figure is close to 7.8 per cent.

Still the rural sector has been under severe pressure, and as expected, the Centre has doled out a huge relief package in the form of direct income scheme. The cost to the Centre? A substantial ₹75,000 crore.

This raises a bigger issue, as it provides little headroom for discretionary spends.

Capital expenditure dips

This brings us to the larger issue of the quality of fiscal consolidation that has suffered in the past few years. While there has been a lot of focus on reining in the fiscal deficit and meeting the much-revered 3-3.3 per cent, crimping on expenditure has cost the economy dear.

In India, the bulk of government spending is mostly biased towards boosting consumption rather than investments. The expenditure on interest payments, defence, pay and allowances and subsidies are the main components of the Central government’s revenue expenditure.

The share of capital expenditure as a percentage of GDP or total expenditure has been falling in recent years. From 14 per cent in FY16, the share of capital expenditure is down to 12-odd per cent. The Centre will need to raise its capital expenditure to have a greater and sustainable multiplier impact on overall growth. But going by the Budget numbers, capital expenditure has been pegged to grow by a muted 6 per cent in FY20; bulk of the incremental expenditure has once again gone towards revenue spends.

Interestingly, the Centre has relied increasingly on Internal and Extra Budgetary Resources (IEBR) in recent years to fund its capital expenditure.

The IEBR constitutes funds raised by central public sector enterprises by way of profits, loans and equity. The IEBR is kept out of the fiscal deficit calculation. Over the past years, IEBR has been moving up substantially.

In fact in the past three years, the IEBR has surpassed the budgeted allocation of capital expenditure.

In FY20, while gross budgetary support for capital expenditure is ₹3.36 lakh crore, the IEBR is a far higher ₹5.2 lakh crore!

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