Spending more: States improve capex pace, push investment revival

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November 15, 2021 5:00 AM

Among the 20 states reviewed, capex by Uttar Pradesh was Rs 23,803 crore in H1FY22, an increase of a whopping 563% on year. Madhya Pradesh’s capex stood at Rs 18,804 crore (up 95%), Telangana at Rs 15,078 crore (135%) and Karnataka at Rs 13,957 crore (26%).

Data gathered by FE of 20 states showed that these states reported combined capex of `1.6 lakh crore in April-September of FY22, up 79% on year, compared with a decline of 31% in the corresponding period of FY21.Data gathered by FE of 20 states showed that these states reported combined capex of `1.6 lakh crore in April-September of FY22, up 79% on year, compared with a decline of 31% in the corresponding period of FY21.

Improved revenues have enabled state governments to regain the pace of their capital expenditure in the first six months of the current financial year. The development could help kick-start an investment cycle, even as low capacity utilisation level in the private sector is raising doubts about the feasibility of an investment revival in the key segment.

Data gathered by FE of 20 states showed that these states reported combined capex of `1.6 lakh crore in April-September of FY22, up 79% on year, compared with a decline of 31% in the corresponding period of FY21.

These states’ capex in April-September in the current fiscal year was 23% higher than in corresponding period of the pre-pandemic year, FY20. Of course, the states’ capex level is still slightly lower than what it could have been, had the pandemic not upset the momentum; the pandemic’s adverse effect is still to be completely offset.

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 37% of their aggregate capital expenditure target for FY22 in the first six months of the current financial year, by spending Rs 2.19 lakh crore, according to official sources. Their capex was 30% of the annual target in the corresponding period of FY21.

What helped the 20 states –UP, Maharashtra, Rajasthan, Tamil Nadu, Kerala, Odisha, Gujarat, Karnataka, Telangana, Madhya Pradesh, Haryana, Andhra Pradesh, Bihar, Punjab, Chhattisgarh, Jharkhand, Uttarakhand, Himachal Pradesh, Tripura and Manipur– to sustain their capex performance so far in FY22 has been a 32% jump in their combined tax receipts to Rs 7.9 lakh crore.

Improved revenue flows have prompted states to prune borrowings. Borrowings by these states declined by 8% on year to about Rs 3 lakh crore in the April-September, 2021 period, compared to 68% rise witnessed in the (Covid affected) year-ago period.

While FY21 saw a big spike in issuance of state development loans (SDLs) as states struggled to meet enhanced expenditure commitments owing to Covid-19 amid a dip in revenues, borrowings by twenty-seven states and two union territories so far in the current fiscal year remain 12% lower than the Indicative calendar and 16% less than that in the corresponding period of FY21.

Among the 20 states reviewed, capex by Uttar Pradesh was Rs 23,803 crore in H1FY22, an increase of a whopping 563% on year. Madhya Pradesh’s capex stood at Rs 18,804 crore (up 95%), Telangana at Rs 15,078 crore (135%) and Karnataka at Rs 13,957 crore (26%).

The states also saw their revenue expenditure rise 12% on year in April-September of FY22, while total expenditure rose 17%.

The Centre’s capital expenditure in April-September of FY22 stood at Rs 2.29 lakh crore or 41.4% of the annual target as against 40.3% of the relevant target achieved in the year-ago period.

During April-September of FY22, the Centre’s capital expenditure stood at Rs 2.29 lakh crore, up 28% on year as against the required rate of 30% to achieve the full year target of Rs 5.54 lakh crore in FY22.

On Friday, the Union finance ministry said seven states can borrow an additional Rs 16,691 crore for achieving the capital expenditure target set by it till the second quarter of FY22.

The Centre has asked all states to undertake a combined Rs 1.1 lakh crore more capex in FY22 than Rs 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.

On Monday, Union finance minister Nirmala Sitharaman will brainstorm with chief ministers and finance ministers of states on stimulating investment and growth and the issue of capex will also likely to be discussed.

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