States’ capex pace strong till Nov; may slow in Q4

These 18 states reported a 30% on-year jump in their combined tax receipts to Rs 10.69 lakh crore (as against a required rate of 26% by all states to achieve their tax revenue target of Rs 22.85 lakh crore in FY22).

Improved revenues and a resolve to pump-prime the economy helped state governments to front-load their capital expenditure. Data gathered by FE of 18 states showed that these states reported a combined capex of Rs 2.1 lakh crore in April-November of FY22, up 66% on the year, compared with a decline of 34% witnessed in the corresponding period of FY21.

The combined capex of all states need to grow 44% on year to achieve their combined capex target of Rs 7.23 lakh crore for FY22.

Conventionally, capex by states are augmented towards the end of a financial year. But this time around, the third Covid wave may lead to a slowing of capex in the last quarter of the year.

The combined capex of states stood at Rs 5.02 lakh crore in FY21, 22% lower than Rs 6.46 lakh crore envisaged (Budget Estimate) as Covid-19 hurt revenues.

Capex by these states – Uttar Pradesh, Maharashtra, Tamil Nadu, Madhya Pradesh, Karnataka, Gujarat, Rajasthan, Odisha, Kerala, Bihar, West Bengal, Haryana, Chattisgarh, Jharkhand, Punjab, Uttarakhand, Himachal Pradesh and Tripura – in April-November of FY22 was 10% higher than the corresponding period in the pre-pandemic FY20.

To boost capex by states, the Centre has frontloaded the entire back-to-back loan component of Rs 1.59 lakh crore to the states in lieu of shortfall in release of GST compensation during the current financial year. It has also released an additional installment of central tax devolution to states in November (Rs 47,541 crore) as the Covid’s adverse effect is still to be completely offset.

These 18 states reported a 30% on-year jump in their combined tax receipts to Rs 10.69 lakh crore (as against a required rate of 26% by all states to achieve their tax revenue target of Rs 22.85 lakh crore in FY22).

Improved revenue flows have prompted states to prune borrowings. Borrowings by these states declined 4% on year to about Rs 3.1 lakh crore in the April-November, 2021 period, compared to 35% rise witnessed in the Covid affected year-ago period. The extra borrowing space granted to states to bridge the revenue gap has pushed the states’ aggregate gross fiscal deficit to a 17-year high of 4.2% of GDP and debt to a 15-year high of 31.1% in FY21.

Among the states reviewed, capex by Uttar Pradesh was Rs 33,457 crore in April-November of FY22, a surge of 267% on-year. Madhya Pradesh’s capex stood at Rs 23,731 crore (up 69%), Tamil Nadu’s at Rs 20,577 crore (59%) and Karnataka’s at Rs 17,883 crore (10%).

The 18 states saw their revenue expenditure rise 13% on year in April-November of FY22, lower than the budgeted rate of 20% growth by all states over actuals of FY21. Thanks to a slower pace of revenue expenditure, these states’ total expenditure rose 17% on year in April-November 2021 as against a budgeted rate of 24% rise by all states in FY22 over actuals of FY21.

The Centre has asked all states to undertake at least a combined Rs 1.1 lakh crore more capex in FY22 than Rs 4.6 lakh crore achieved in the pre-pandemic year of FY20. The states are allowed net borrowing of 4% of GSDP in FY22 with 50 basis points of this linked to the achievement of incremental capex targets.

Besides states, the Centre also roped in CPSEs for pushing public capex, which is key to an investment-led economic growth revival. According to the first advance estimates released by the National Statistical Office (NSO) on Friday, gross fixed capital formation (GFCF) is seen growing 14.9% in FY22 compared with FY21 and 2.6% higher than the pre-pandemic year of FY20.

Capital expenditure by large central public-sector entities — companies and undertakings — rose about 19% on year to Rs 3.1 lakh crore in the first eight months of the current financial year, official sources told FE. However, the Centre’s capex is lagging. The Centre’s capital expenditure in April-November of FY22 stood at Rs 2.74 lakh crore, an annual increase of 14% as against a required rate of 30% to achieve the FY22 target.

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