While the Centre has put brakes on capital expenditure in the later months of FY18 to avoid a big fiscal slippage, the states have compressed capex even more aggressively to finance their rising revenue expenditures and curb borrowings. Data reviewed by FE of 19 states show that their aggregate capex in April-January this fiscal was Rs 2.12 lakh crore, half their full-year target of Rs 4.13 lakh crore, and even lower than `2.18 lakh crore was achieved in the year-ago period. In case of some states, the deceleration of capex was unprecedentedly steep: Uttar Pradesh, for instance, spent just 37% of its annual capex budget in the first 10 months of this fiscal, while Maharashtra’s achievement was 38% and Punjab’s just 23%. In fact, capex by Punjab in April-January was a huge 62% lower than a year ago, and UP’s spending was down by 52% y-o-y. As reported by FE earlier, what propped up public capex during the year despite such niggardliness by states is a jump in investments by central PSUs.
The national income data released lately showed growth in gross fixed capital formation picking up from 1.6% in Q1FY18 to 6.9% in Q2 and an impressive 12% in Q3, thanks to CPSEs and some private firms. Coaxed by the promoter, these PSUs and other departmental undertakings like NHAI with annual capex plans of Rs 500 crore and above have invested Rs 1.93 lakh crore in April-December this year, 60% of the annual target for these firms. While all CPSEs — including those below the Rs 500-crore capex threshold — rolled out capital investments of Rs 3.4 lakh crore in 2016-17, the figure jumped 18% to a little over Rs 4 lakh crore in 2017-18 (revised estimate), under the Centre’s prodding and a similar amount is budgeted for next fiscal as well. (Of course, the budget shows 2017-18 PSU capex to be Rs 4.76 lakh crore, with the inclusion of Food Corporation of India’s procurement spending, but this is barely of capex variety). Among states, the achievement of some other states namely Rajasthan, Himachal Pradesh, Bihar and Chhattisgarh during April-January were also much below 50% of the respective full-year capex targets.
Madhya Pradesh and Tamil Nadu too, saw a decline in capex in April-January this year, compared to the year ago period. Rising revenue expenditures due to higher wage bills (induced by the 7th Pay Commission) and interest burden seem to have compelled many states to curb their capex. UP, Punjab, Maharashtra, Rajasthan and Karnataka are also at various stages of implementing farm loan waivers. It is estimated that, loan waivers by all states could be around Rs 2 lakh crore. Rising interest burden has resulted in states slowing down their borrowing plans too. Total borrowings by the 19 states declined 25% year-on-year to Rs 2.27 lakh crore. As per the budget estimates, the combined capital expenditure of all states are pegged at 2.79% of gross domestic product or about Rs 4.7 lakh crore in 2017-18 against the revised estimate of 2.77% of GDP or about Rs 4.2 lakh crore in the previous year. Clearly, the target is set to be missed by a wide margin. In the first 10 months of this year, the interest costs of the 19 states rose 16% to Rs 1.62 lakh crore. Salary expenditure of many states like Kerala, Haryana and Madhya Pradesh have gone up substantially. In revised estimate for 2017-18, the capital expenditure of the Centre was cut by Rs 36,356 crore to Rs 2.73 lakh crore to accommodate higher revenue expenditure such as salary costs and lower-than-expected non-tax revenue. In the initial months of the year’s budgetary capex by the Centre was at a brisk pace; in April-January the Centre achieved 97% of the revised estimate.