Improved revenues have enabled states to keep a healthy pace of capital expenditure in the first eight months of the current financial year, even as the early part of this period saw the savage second Covid wave. Data gathered by FE of 16 states showed their combined capex stood at Rs 1.5 lakh crore in April-October of FY22, up 70% on year and 13% over the level in the comparable immediate pre-pandemic period.
Of course, the growth in states’ capex was also aided by a conducive base (34% decline in the corresponding period of FY21).
With a view to sustaining the states’ capex momentum, an integral part of public spending, the Centre front-loaded the back-to-back loan component of GST compensation and increased the tax transfers to states in November to double the level envisaged in the Budget.
The states’ capex needs to grow by an annual average of 44% over FY21 to achieve the ambitious target of Rs 7.23 lakh crore for FY22.
The Centre’s own capital expenditure in April-October of FY22 stood at Rs 2.53 lakh crore, an annual increase of 28% against a required rate of 30% to achieve the FY22 target. The Centre also roped in CPSEs for pushing public capex, which is key to an investment-led economic growth revival. Large central public sector entities — companies and undertakings — achieved 45% of their aggregate capital expenditure target for FY22 in the first seven months of the current financial year, by spending Rs 2.67 lakh crore, according to official sources.
As per the National Statistical Office data released recently, fixed investment returned to the pre-pandemic level in Q2FY22 (which was a dismal period in itself). Given that private capex revival is slow and limited to certain sectors, spending by states and CPSEs played a critical role in achieving a moderate improvement in investment rate.
Better tax revenues helped the 16 states whose budgets were reviewed by FE –Uttar Pradesh, Maharashtra, Rajasthan, Kerala, Odisha, Karnataka, Madhya Pradesh, Haryana, Andhra Pradesh, Bihar, Punjab, Chhattisgarh, Jharkhand, Uttarakhand, Himachal Pradesh and Tripura – to sustain their capex performance. These states reported a 27% on-year jump in their combined tax receipts to Rs 7.4 lakh crore (against a required rate of 26% by all states to achieve their tax revenue target of Rs 22.85 lakh crore in FY22).
Improved revenue flows have also allowed the states to prune borrowings. Borrowings by the 16 states rose just 8% on year to about Rs 3.1 lakh crore in the April-October 2021 period, compared with 57% rise witnessed in the (Covid affected) year-ago period.
Among the 16 states reviewed, capex by Uttar Pradesh was Rs 29,093 crore in April-October of FY22, a surge of 342% on year. Madhya Pradesh’s capex stood at Rs 21,358 crore (up 79%), Karnataka at Rs 15,942 crore (11%) and Maharashtra at Rs 14,233 crore (191%).
These states also saw their revenue expenditure rise 13% on year in April-October of FY22, which was lower than the budgeted rate of 20% growth by all states over actual of FY21. Thanks to a slower pace of revenue expenditure, these states’ total expenditure rose 17% on year in April-October 2021 against a budgeted rate of 24% rise by all states in FY22 over actuals of FY21.
The Centre has asked all states to undertake a combined Rs 1.1 lakh crore more capex in FY22 than the Rs 4.6 lakh crore achieved in the pre-pandemic year of FY20. The states are allowed net borrowing of 4% of GSDP in FY22 with 50 basis points of this linked to the achievement of incremental capex over their investmenst in FY20.