India Eases Rules to Encourage Ministries to Spend to Aid Economy
A worker sets up barrier tape at a construction site in Tamil Nadu. (Photographer: Dhiraj Singh/Bloomberg)

India Eases Rules to Encourage Ministries to Spend to Aid Economy


India eased rules for capital expenditure by government departments, as it seeks to spur spending in an economy that is trying to shake-off the impact of a new wave of coronavirus infections.

Curbs put in place in 2017 on monthly and quarterly spending by ministries won’t apply for capital expenditure, the Finance Ministry said in a memorandum Thursday. The relaxations are effective immediately and will be in force until further orders, it said.

The easy rules are aimed at nudging various government departments to boost investments in creating assets, which will in turn make the best-spenders eligible to access a 440 billion-rupee ($5.9 billion) fund set aside by Finance Minister Nirmala Sitharaman. She had proposed boosting capital expenditure by 26% to 5.54 trillion rupees in the fiscal year that began April 1, hoping that spending by the state will crowd in private investments.

The Reserve Bank of India estimates that every one rupee spent by the federal government will lead to an increase in gross domestic product by 3.14 rupees. That is key for Prime Minister Narendra Modi to support a nascent economic revival in Asia’s third-largest economy, which this week recorded the world’s highest one-day surge in Covid-19 cases at more than 300,000.

India had scaled back expenditure for most of last year, including on productive assets that aid economic growth, before freeing spending toward the end of the fiscal period ended March. As of February, capital spending was 92.4% of the targeted 4.39 trillion rupee spending, according to data from the Controller General of Accounts.

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