Amid a rise in demand and capacity utilisation in the industry, the state governments seem to have calibrated their capital expenditure. The combined capex of twenty states whose finances were reviewed by FE were down 9% on year to Rs 55,0057 crore in the June quarter. These states, which represent roughly 80% of the country’s Gross Domestic Product (GDP), had reported a whopping 118% capex growth in Q1FY22, partly aided by favourable base.
The states have regulated capital spending, bucking the trend of acceleration in recent years because of concerns over revenues after the cessation of the Goods and Services Tax (GST) compensation. Also, market borrowings of many states have been impacted as the Centre’s approvals got delayed. With most of the states getting borrowing nod from the Centre in June, these 20 states’ borrowings declined by a whopping 71% on year to Rs 37,531 crore in Q1FY23.
The combined tax revenues of the 20 states, however, stood at Rs 4.46 trillion in Q1FY23, up a robust 37% on year compared with 43% growth seen by these in the year ago quarter.
The Centre cut Rs 41,000 crore from states’ aggregate net borrowing ceiling for FY23 for resorting to off-balance sheet loans in FY22, in a move that would impact eight states, including Uttar Pradesh, Telangana and Kerala (these states also saw a decline in capex in Q1FY23). The decision is part of a tightening of norms to discourage fiscal indiscipline by states, many of which resort to debt through parastatal bodies to fund government schemes and capex.
The Centre had front-loaded release of GST compensation to states till May 31 to aid their capex. Anticipating a decline in capex, the Centre is also extending a Rs 1 trillion soft loan, 80% of which is unconditional 50-year interest-free loan, to states to keep up the capex momentum. As states draw down from this facility, their capex may start showing improvement from Q2FY23 onwards, analysts said.
State capex is seen to have a higher growth multiplier potential than central Budget/CPSE capex. While the Centre’s Budget capex rose 57% on year to Rs
1.75 trillion in April-June of FY23, a conscious effort is being made by the government to ensure that the CPSEs/departmental arms (which achieved Rs 1.37 trillion or 21% of their annual target in Q1FY23) ramp up investments.
The states reviewed are Maharashtra, Uttar Pradesh, Madhya Pradesh, Karnataka, Gujarat, Odisha, Telangana, Kerala, Rajasthan, West Bengal, Punjab, Bihar, Chattisgarh, Haryana, Jharkhand, Uttarakhand, Himachal Pradesh, Tripura, Sikkim and Nagaland.
The 20 states saw their revenue expenditure rise 13% on year in Q1FY23, registering flat growth on the year.