States’ capital expenditures likely fell 4% on-year in the first nine months of the current financial year despite the Centre’s acceleration in capex loan to them, indicating the year is likely to end with a flattish growth in spending on asset creation.
A review of the finances of 16 states by FE showed that their capex in April-December 2024 declined to about Rs 3.39 lakh crore compared with Rs 3.52 lakh crore with an annual growth of 40% in the year-ago period.
The states reviewed were Maharashtra, Uttar Pradesh, Odisha, Madhya Pradesh, Andhra Pradesh, Karnataka, Tamil Nadu, West Bengal, Haryana, Kerala, Jharkhand, Punjab, Rajasthan, Uttarakhand, Telangana and Assam.
The Centre in the recent Budget has revised downwards its capex target for FY25 by Rs. 93,000 crore from the original budget estimate of Rs 11.1 lakh crore, considering the spending pace by January.
Showing urgency for the execution of projects across the country to support economic activity, the Centre has relaxed a clutch of norms for its liberal interest-free capex loans to states to ensure that Rs 1.5 lakh crore earmarked for the purpose are fully utilised and help arrest the decline in public capex. Till December, the Centre released Rs 90,000 crore to states.
The Centre also frontloaded tax devolution to them by releasing two instalments amounting to Rs 1.78 lakh crore for October instead of one regular monthly instalment. In June, the Centre also released two monthly instalments. Yet, the continued deceleration in capex showed that the states could not overcome the capacity constraints due to the backloading of project implementation owing to the general election and extended rains.
As spending on asset creation slowed down, the 16 states’ borrowing grew by a moderate 14% on year in April-December 2024 to Rs 5.07 lakh crore compared with a 41% increase in borrowing in the year ago period.
These states under review reported a healthy 13% growth in their tax revenues in April-December 2024 at Rs 19.5 lakh crore compared with the 14% growth recorded in the year-ago period.
The states under review reported a 12% annual increase in revenue expenditure in the first nine months of FY25 compared with the 9% growth seen in the year-ago period.
State governments contained their consolidated gross fiscal deficit (GFD) within 3% of gross domestic product (GDP) and their revenue deficit at 0.2% of GDP during 2022-23 and 2023-24.
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