The government in the Medium-term Expenditure Framework Statement (MTEF) has said that the capital expenditure has been budgeted to be Rs 309,801 crore in fiscal year 2017-18 which is likely to increase by 10% to Rs 3,41,000 crore in the next fiscal and will rise by 25% to Rs 390,000 crore in FY 2019-20, mainly supported by a jump in defence and infrastructure spending. Together with revenue expenditure, the government's total spending is projected to rise from Rs 21.46 lakh crore in 2017-18 to Rs 23.4 lakh crore in the next financial year and Rs 25.95 lakh crore in 2019-20.
As per the Mid-Year Review of expenditure, Defence, which accounts for about 30% of the government's capital outlay, will see the spending rise from Rs 91,580 crore in the current fiscal to Rs 1,01,137 crore in the next one and Rs 1,11,706 crore in 2019-20. While outgo on fertiliser subsidy is projected to be flat at Rs 70,000 crore between the current fiscal and 2019-20, the food subsidy bill will rise to Rs 1.75 lakh crore in 2018-19 and Rs 2 lakh crore in the following fiscal. The food subsidy bill in the current fiscal is pegged at Rs 1.45 lakh crore.
The petroleum subsidy would drop to Rs 18,000 crore in 2018-19 from Rs 25,000 crore in the current fiscal and to Rs 10,000 crore in 2019-20. Petrol and diesel prices have been decontrolled and the subsidy outgo on petrol has been restricted to LPG and kerosene. In continuation of the efforts of the government to rationalise subsidises, the MTEF said, the government has decided to increase the cost of LPG cylinders by Rs 4 per month. The ultimate aim of the government is to eliminate the subsidy on LPG cylinders by end-March 2018. After successful implementation of paying subsidies directly into the bank accounts of LPG users, the government is now focused on reducing kerosene subsidies.
MTEF also said that introduction of the Goods and Services Tax (GST) from July 1 this year as also the increased surveillance post-demonetisation would expand the tax base in next two fiscal years. According to the review, the tax-GDP ratio will increase by 30 basis points in 2018-19 and 2019-20 and are projected to be 11.6% in 2018-19 and 11.9% in 2019-20. While the revenue deficit target of 2% of GDP will be met in the current fiscal, the deficit would be 1.9% in the next. However, it added that the elimination of effective revenue deficit will have to be re-calibrated.