States revive capex aided by tax revenue rise

By: |
July 13, 2021 4:15 AM

In April-May last year, when a nationwide lock-down brought economic activities to a standstill, the growth in states' capex declined by 67%. Of course, the aggregate capex growth of these states were still 25% lower than in April-May period of the pre-pandemic year, FY20.

During April-May of FY22, the Union government’s capital expenditure grew 14% on year to Rs 62,961 crore.During April-May of FY22, the Union government’s capital expenditure grew 14% on year to Rs 62,961 crore.

Aided by an incipient recovery in tax revenues, state governments seem to have stepped up capital expenditure, reversing a declining trend witnessed in FY20 due to the pandemic, which dented revenues and necessitated elevated revenue spending. Data gathered by FE of 15 major states shows that these states reported combined capex of Rs 26,115 crore in April-May of the current financial year, up 129% on year. Of course, the surge is aided by a low base.

In April-May last year, when a nationwide lock-down brought economic activities to a standstill, the growth in states’ capex declined by 67%. Of course, the aggregate capex growth of these states were still 25% lower than in April-May period of the pre-pandemic year, FY20.

What helped the 15 states to improve their capex performance from the much lower levels seen in April-May of the previous fiscal was a steep 75% jump in tax receipts, again from a low base. Correspondingly, the need to borrow has also reduced. Borrowings by these states declined 40% to `63,638 crore in the April-May, 2021 period, compared to 45% rise witnessed in the year-ago period.

Given the evolving Covid-19 situation, the Centre has allowed the state governments to borrow 75% of their annual market borrowing limit of 4% (50 bps of which linked to achieving capex targets) of their respective gross state domestic product (GSDP) in the first nine months of the current fiscal. States implementing power sector reforms can avail additional 50 bps borrowing window.

Among the 15 states, capex by Uttar Pradesh was Rs 3,200 crore in April-May FY22 (in the year ago period, there was a net inflow of Rs 1,878 crore in the capital account). Haryana’s capex stood at Rs 4,337 crore (up 56%), Rajasthan’s at Rs 2,909 crore (up 1,826% on year) and Telangana’s at Rs 2,655 crore (up 133%).

A separate set of data gathered by FE of 15 states (most in the latest review, some not) showed their Capex stood at Rs 3.26 lakh crore in FY21, up 2% on year, compared with a negative growth of 6% recorded in FY20. Of course, the aggregate capex growth of all states was 2% higher in FY20 over FY19, as per data released by the RBI.

Tax revenues of the states reviewed were up 75% on year in April-May of FY22 at Rs 2.03 lakh crore, indicating impact of the second Covid-19 wave was much less than the year-ago period when there was a nationwide lockdown in place. The states saw their revenue expenditure rise 11% on year in April-May of FY22, while total expenditure rose 15%.

During April-May of FY22, the Union government’s capital expenditure grew 14% on year to Rs 62,961 crore.

In recent months, the Centre has indeed stepped up spending to support the economy and also roped in CPSEs in the venture as it aims for an investment-led economic growth revival.

Large central public sector entities – companies and undertakings – achieved 10% of their capital expenditure target for FY22 in the first two months of the current financial year, by spending Rs 63,000 crore, according to official sources. Given the second Covid wave that struck the country, this is a decent number; these entities achieved just about 2% of the annual capex target in the year-ago period.

Do you know What is FinMin releases Rs 9,871 cr grant to 17 state, Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Govt set to overshoot FY22 tax collection target as Q1 mop-up reaches Rs 5.6 lakh cr: Icra
2Forex reserves zoom to record high of USD 612.73 bn
3Road ahead more daunting, need to recalibrate priorities: Manmohan Singh on 30 yrs of liberalisation