Q1 capex: Eleven states can borrow additional `15,721 cr

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September 15, 2021 4:30 AM

To become eligible for incremental borrowing, states are required to achieve at least 15% of the capex target set for 2021-22 by the end of first quarter of 2021-22, 45% by the end of second quarter, 70% by the end of third quarter and 100% by the final quarter.

capexThe additional open market borrowing permission granted is equivalent to 0.25% of the Gross State Domestic Product (GSDP) of the respective state.

Eleven states among themselves can borrow an additional `15,721 crore as reward for meeting the capital expenditure target set by the Union finance ministry for the first quarter of 2021-22.

The states eligible for additional borrowings are: Andhra Pradesh (`2,655 crore), Rajasthan (`2,593 crore), Madhya Pradesh (`2,590 crore), Kerala (`2,255) crore, Haryana (`2,105 crore), Bihar (`1,699 crore), Chhattisgarh (`895 crore), Uttarakhand (`654 crore), Meghalaya (`96 crore), Manipur (`90 crore) and Nagaland (`89 crore).

The additional open market borrowing permission granted is equivalent to 0.25% of the Gross State Domestic Product (GSDP) of the respective state.

The Centre asked states to spend an additional `1.1 lakh crore as capex in FY22, over and above `5 lakh crore achieved in pre-pandemic year of FY20. The states are allowed net borrowing of 4% of GSDP in FY22 (with 50 basis point of this linked to achievement of incremental capex over their investment in FY20).

By undertaking specified reforms stipulated by the Centre, 23 states could borrow an additional `1.06 lakh crore in FY21, Prime Minister Narendra Modi had revealed in a blog posted on June 23, flagging this as proof that there were many takers among states of sound economic policies. “As a result, the aggregate borrowing permission granted to states for 2020-21 (conditional and unconditional) was 4.5% of the initially estimated GSDP,” Modi had noted.

In May 2020, as part of the Aatmanirbhar Bharat package, the Centre announced that states would be allowed enhanced borrowing for 2020-21. An extra 2% of GSDP or `4.28 lakh crore (over customary 3%) was allowed, of which half was made conditional on the implementation of certain economic reforms. 

Capital expenditure has a high multiplier effect, enhances the future productive capacity of the economy, and results in a higher rate of economic growth.

To become eligible for incremental borrowing, states are required to achieve at least 15% of the capex target set for 2021-22 by the end of first quarter of 2021-22, 45% by the end of second quarter, 70% by the end of third quarter and 100% by the final quarter.

Next review of capex of states will be undertaken by the Department of Expenditure in December 2021. In this round, capital expenditure achieved by the states till September 30, 2021, will be assessed. Third review will be done in March 2022 on the basis of capital expenditure incurred by the state during the first three quarters of the year 2021-22. The capital expenditure-linked borrowing ceiling of 0.5% of GSDP will be allowed to those states who will achieve actual capital expenditure of at least 45% of the target by September 30, or 70% of the target by December 31, it said.

There would be a final review of actual capital expenditure by the states in the month of June, 2022. Any shortfall/deficiency in actual capital expenditure for the year 2021-22 by the state in comparison with the targeted capital expenditure for the year 2021-22, will be adjusted from the borrowing ceiling of the state for the year 2022-23,” it added.

State governments have stepped up capital expenditure in the first quarter of the current financial year, reversing a declining trend witnessed in the corresponding period in the previous year due to the Covid pandemic, which dented revenues and necessitated elevated revenue spending.

Data gathered by FE of 15 major states show that these states reported combined capex of `53,100 crore in April-June of 2021-22, up 135% on year. Of course, the surge is aided by a low base and were still 0.7% lower than in April-June period of the pre-pandemic year, 2019-20. In April-June of 2020-21, when a nationwide lockdown brought economic activities to a standstill, the growth in states’ capex declined by 58%.

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