States’ capital expenditure likely declines more than a fifth year-on-year in the first quarter of FY25, reflecting a broader decline across public capex, largely due to general elections and slower disbursement of capex loans to the states.
Capital expenditure by the Centre and central public sector enterprises (CPSEs), including departmental agencies, also saw significant declines of 35% and 39%, respectively, in Q1 FY25, indicating challenges in meeting their annual targets.
An FE review of the finances of 18 states revealed that their capex in April-June FY25 dropped 22% year-on-year to Rs 71,798 crore, compared with Rs 92,350 crore in the same period last year, when capex had seen an annual growth of 74%.
The states reviewed included Uttar Pradesh, Madhya Pradesh, Andhra Pradesh, Maharashtra, Tamil Nadu, West Bengal, Bihar, Haryana, Karnataka, Kerala, Odisha, Punjab, Rajasthan, Telangana, Chhattisgarh, Jharkhand, Uttarakhand and Himachal Pradesh.
Recognising the states’ resource crunch, the Centre frontloaded tax devolution by releasing two installments amounting to Rs 1,39,750 crore on June 10, instead of the usual single installment.
In recent years, public capex led by the Centre, states and CPSEs has played a crucial role in boosting economic activity as private investment has remained subdued.
The 18 states under review reported a 16% growth in their tax revenues in Q1FY25, reaching Rs 6.7 trillion, compared to the 22% growth recorded in the same period last year.
As tax revenue growth slowed, these states’ borrowings rose 27% y-o-y to Rs 0.93 trillion in Q1 FY25, compared with a 3% decline in the same period last year.
The states also reported a 9.5% annual increase in revenue expenditure in the first three months of FY25, totaling Rs 7.8 trillion, compared with 8% growth in the year-ago period.
In addition to the frontloading of tax devolution, the interest-free 50-year loans from the Centre for capex could help states boost their capital expenditure in the coming quarters.
A review of 24 states’ finances by FE showed that their capex in FY24 rose to Rs 7.16 trillion from Rs 5.68 trillion in the previous year. This included Rs 1.09 trillion in 50-year loans provided by the Centre in FY24, compared with Rs 0.81 trillion in FY23. For FY25, the Centre has allocated Rs 1.5 trillion in the budget, but the disbursement of capex loans has been slow so far this fiscal year.