The Union Government's capital expenditure has been steadily increasing, budgeted to rise to 2.9% of GDP in FY23. More than 59.6% of the budgeted capital expenditure for FY23 has been spent from April to November 2022, showing a year-on-year growth of over 60%. This capital expenditure is seen as a counter-cyclical fiscal tool to strengthen aggregate demand, generate employment, and boost other sectors. To further enhance capital expenditure, the Centre has announced incentives for states in the form of long-term interest-free loans and capex-linked additional borrowing provisions.

Revenue expenditure of the Union Government was reduced from 15.6% of GDP in FY21 to 13.5% of GDP in FY22 Provisional Actual (PA). This reduction was primarily due to a decrease in subsidy expenditure. However, around 94.7% of the budgeted expenditure on subsidies has been utilized from April to November 2022 due to geopolitical conflicts leading to higher international prices for food, fertilizer, and fuel. Interest payments as a proportion of receipts increased post-pandemic but are expected to decrease with buoyant revenues, aggressive asset monetization, efficiency gains, and privatization.

The combined Gross Fiscal Deficit (GFD) of the States, which increased to 4.1% of GDP in FY21, was reduced to 2.8% in FY22 PA. The capital outlay of states grew by 31.7% in FY22 PA, supported by strong revenue buoyancy and central government support, including GST compensation payments and interest-free loans.