The Centre on Thursday released an extra installment of tax devolution to state governments amounting to Rs 58,333 crore for November. This is the second such release this fiscal, the first being in August, to arrest a slowdown in their capital expenditure.
“The Union government has released two installments of tax devolution to state governments amounting to Rs 1,16,665 crore today (Thursday), as against normal monthly devolution of Rs 58,333 crore,” the finance ministry said in a statement.
“This is in line with the commitment of Government of India to strengthen the hands of states to accelerate their capital and developmental expenditure,” it added.
The state governments have slowed down their capital expenditure in the first six months of the current fiscal to accommodate higher revenue spending even as they continue to curb borrowings. The combined capex of nineteen states whose finances were reviewed by FE was up just 2% on year at Rs 1.67 trillion in April-September of the current fiscal. The growth was 80% in the year-ago period, albiet on a favourable base.
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Central tax devolution will overshoot the FY23BE, warranting an early reassessment of the monthly amounts being shared with the states to enable them to boost their capital spending, given the lead time required to plan and execute capital projects.
In FY22, a large part of the upside in tax devolution was back-ended to Q4, which ended up reducing state government borrowings in that quarter but did not translate to higher spending.
According to a FE analysis, the Centre’s gross tax revenue may exceed budget target by Rs 4 trillion in FY23, thanks to robust growth in GST and direct tax receipts.