Capital expenditures by state governments likely fell 6% year over year in the first ten months of the current financial year despite the Centre’s acceleration of capex loans to them, indicating that the states’ own investments have slowed down.
FE reviewed the finances of 18 big states and found that their capex in April-January of FY25 declined to about Rs 4.1 lakh crore compared with Rs 4.4 lakh crore in the year-ago period. The states reviewed were Gujarat, Maharashtra, Uttar Pradesh, Odisha, Madhya Pradesh, Andhra Pradesh, Karnataka, Tamil Nadu, West Bengal, Haryana, Kerala, Jharkhand, Punjab, Rajasthan, Uttarakhand, Telangana, Chhattisgarh and Assam.
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 1.25 lakh crore earmarked in the revised estimate for the purpose are fully utilised and help arrest the decline in public capex. Till February 24, the Centre released Rs 1.15 lakh crore to states.
The Centre also frontloaded tax devolution to them by releasing three extra instalments amounting to about Rs 2.5 lakh crore since June instead of backloading them to accelerate their spending. 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 18 states’ borrowings and other liabilities grew by a modest 6.5% on year in April-January of FY25 to Rs 6.55 lakh crore compared with a 38.2% increase in borrowing and liabilities in the year ago period.
The states under review reported a healthy 15% growth in their tax revenues in April-January of FY25 at Rs 24.6 lakh crore compared with the 13% growth recorded in the year-ago period. They reported about 12% annual increase in revenue expenditure in the first ten months of FY25 compared with the 9% growth seen in the year-ago period.
The Centre is following a public capex –union, states and public enterprises—led economic growth revival. In the first ten months of FY25, the Centre’s capex rose by a relatively modest 5%. The CPSEs, including railway board and NHAI, have reported an 8% growth in investment at Rs 7.39 lakh crore in April-January of FY25.
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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