States likely to cut capital outlay on infra by up to 40% due to COVID-19: ICRA

By: |
November 10, 2020 5:13 PM

The rating agency said major states together had a budgeted capital outlay of over Rs 5.7 lakh crore for 2020-21 as against revised estimate of Rs 5.1 lakh crore in 2019-20.

Various policy measures in response to COVID-19 could cost over 0.3 per cent of GDP.Various policy measures in response to COVID-19 could cost over 0.3 per cent of GDP.

Impacted by the COVID-19 pandemic states are likely to cut capital outlay on infrastructure by up to 40 per cent, rating agency ICRA said on Tuesday.

States account for 37-40 per cent of the total infrastructure capital expenditure, it said.

The rating agency said major states together had a budgeted capital outlay of over Rs 5.7 lakh crore for 2020-21 as against revised estimate of Rs 5.1 lakh crore in 2019-20.

“However, with COVID-19 severely impacting revenues of state governments, and additional expenditure towards healthcare and public welfare, the capital outlay on infrastructure by states could decline 10-40 per cent in FY2021,” ICRA said in a statement.

It said some states could witness a steeper decline depending on the extent of additional borrowings, which is availed.

With COVID-19 and the related slowdown in the economic activities, states are staring at a significant decline in their revenues, which in turn could push them to cut down on discretionary expenditure including deferment of capital outlay.

“Furthermore, of the Rs 111 trillion worth infrastructure investments planned under the National Infrastructure Pipeline (NIP), about 40 per cent is from state governments.

“NIP envisages the state’s budgetary outlay on capital investments to be around 1.7 per cent of GDP and states are expected to fund 24-26 per cent of the total expenditure under NIP,” the statement said.

Shubham Jain, Senior Vice-President and Group Head, Corporate Ratings, ICRA said while on one hand states will generate lower revenues, they would also need to increase expenditure towards healthcare and social welfare.

Various policy measures in response to COVID-19 could cost over 0.3 per cent of GDP.

“Hence, to reduce the impact states are likely to curtail some revenue expenditure as well as capital expenditure. In the past, states had cut their capital expenditure by an average of 0.5 per cent of GDP to meet fiscal deficit targets.

“Given the current fiscal position, it is likely that states would cut the capex by a higher proportion in FY2021. However, capex in health and education sectors could increase, Jain said.

To bridge the shortfall, states’ unconditional borrowing limit has been raised from 3 per cent of gross state domestic product (GSDP) to 4 per cent of GSDP for 2020-21, the statement said.

States also have the option of availing another 1 per cent of the GSDP, but on completing specified reforms, it added.

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