States step up capital expenditure as tax revenues rise

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August 09, 2021 4:30 AM

Borrowings by these states declined 16% to Rs 1.1 lakh crore in the April-June, 2021 period, compared to 145% rise witnessed in the year-ago period.

Data gathered by FE of 15 major states shows that these states reported combined capex of Rs 53,100 crore in April-June of FY22, up 135% on year. Of course, the surge is aided by a low base and were still 0.7% lower than in April-June period of the pre-pandemic year, FY20.Data gathered by FE of 15 major states shows that these states reported combined capex of Rs 53,100 crore in April-June of FY22, up 135% on year. Of course, the surge is aided by a low base and were still 0.7% lower than in April-June period of the pre-pandemic year, FY20.

State governments have stepped up capital expenditure in the first quarter of the current financial year, reversing a declining trend witnessed in the corresponding period in the previous year due to the Covid 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 53,100 crore in April-June of FY22, up 135% on year. Of course, the surge is aided by a low base and were still 0.7% lower than in April-June period of the pre-pandemic year, FY20.

In April-June of FY21, when a nationwide lockdown brought economic activities to a standstill, the growth in states’ capex declined by 58% on year.

What helped the 15 states to improve their capex performance from the much lower levels seen in April-June of the previous fiscal was a steep 45% jump in tax receipts, again upon a low base. Correspondingly, the need to borrow has also reduced.

Borrowings by these states declined 16% to Rs 1.1 lakh crore in the April-June, 2021 period, compared to 145% 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 an additional 50 bps borrowing window.

Among the 15 states reviewed, capex by Uttar Pradesh was Rs 9,734 crore in April-June of FY22 (in the year ago period, there was a net inflow of Rs 1,203 crore in the capital account). Madhya Pradesh’s capex stood at Rs 8,761 crore (up 96%), Haryana’s at Rs 5,495 crore (up 87% on year) and Telangana’s at Rs 4,158 crore (up 68%).

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 45% on year in April-June of FY22 at Rs 3.1 lakh crore, indicating impact of the second Covid-19 wave was much less than from the lowdown in the year-ago period. The states saw their revenue expenditure rise 11% on year in April-June of FY22, while total expenditure rose 17%.

During April-June of FY22, the Union government’s capital expenditure grew 26% on year to Rs 1.1 lakh 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 16% of their capital expenditure target for FY22 in the first three months of the current financial year, by spending Rs 93,000 crore, according to official sources. Given the second Covid wave that struck the country, this is a decent number; these entities achieved just about 7% of the annual capex target in the year-ago period.

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