Capital Formation: States’ capex growth remains high, even on rising base

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September 06, 2021 3:30 AM

The capex in the first four of the current financial year was 8% higher than the corresponding period of the pre-pandemic year, FY20.

The Centre also roped in CPSEs in the venture as it aims for an investment-led economic growth revival.The Centre also roped in CPSEs in the venture as it aims for an investment-led economic growth revival.

State governments’ capital expenditure has remained robust in the first four months of the current financial year even as the advantage of low base has begun to peter out.

Data gathered by FE of 14 major states shows that these states reported combined capex of Rs 76,616 crore in April-July of FY22, up 110% on year.

The capex in the first four of the current financial year was 8% higher than the corresponding period of the pre-pandemic year, FY20.

Last year, Covid-induced curbs on spending, especially on capex, had started to ease from July 2020, with these states reporting 83% increase in investment in April-July from the April-June level.

What helped the 14 states to sustain their capex performance so far in FY22 was a 34% jump in tax receipts, again upon a waning low base. Correspondingly, the need to borrow has also reduced. Borrowings by these states rose by just 1% to Rs 1.32 lakh crore in the April-July, 2021 period, compared to 95% rise witnessed in the year-ago period.

Given the uncertainties around Covid-19 situation, the Centre has given the flexibility to the state governments to borrow 75% of their annual net market borrowing limit of Rs 8.47 lakh crore or 4% (50 bps of which linked to achieving capex targets) of their respective gross state domestic product (GSDP) in the first nine months of the current fiscal.

Among the 14 states reviewed, capex by Uttar Pradesh was Rs 15,183 crore in April-July of FY22, an increase of a massive 4,200% from just Rs 353 crore in the year ago period. Madhya Pradesh’s capex stood at Rs 11,194 crore (up 77%), Karnataka’s at Rs 8,436 crore (55%) and Gujarat at Rs 7,146 crore (89%).

Tax revenues of the states reviewed were up 34% on year in April-July of FY22 at Rs 4.06 lakh crore, indicating impact of the second Covid-19 wave was much less than from the lockown in the year-ago period. The states saw their revenue expenditure rise 8% on year in April-July of FY22, while total expenditure rose 15%.

During April-July of FY22, the Centre’s capital expenditure stood at Rs 1.28 lakh crore, up 15% on year as against the required rate of 30% to achieve the full year target of Rs 5.54 lakh crore in FY22. The union finance ministry has asked departments to step up capex in the coming months.

The Centre also roped in CPSEs in the venture as it aims for an investment-led economic growth revival.

Large central public-sector entities — companies and undertakings — achieved 23% of their aggregate capital expenditure target for FY22 in the first four months of the current financial year, by spending Rs 1.34 lakh crore. The capex by these entities were much lower in the year ago period.

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