States’ capex grew likely by a pentile in FY24

States’ capital expenditure likely rose by over 19% on-year in 2023-24 compared with a 15% rise in 2022-23, supported by their robust revenue growth and the Centre’s interest-free capex loans. Going by the trends seen in a dozen states, in aggregate states might have invested substantially more in FY24 than the Rs 6.82 trillion in FY23.

On the other hand, the Centre’s capex has met the FY24 revised estimate of Rs 9.5 trillion, official sources recently said. Central public-sector entities – companies and departmental agencies (CPSEs) – achieved 109% of their combined capital expenditure target for FY24 by investing Rs 8.05 trillion, an all-time high.

A review of the finances of 12 large states- Uttar Pradesh, Maharashtra, Tamil Nadu, Bihar, Haryana, Karnataka, Kerala, Odisha, Punjab, Rajasthan, Telangana and Chattisgarh—-, by FE, showed that their capex in FY24 rose to Rs 4.76 trillion from Rs 3.99 trillion in the previous year.

In a first for any state, Uttar Pradesh’s capex crossed Rs 1 trillion in FY24, up 17% on the year. The state had invested Rs 0.93 trillion in FY23. UP was followed by Maharashtra with Rs 72,376 crore capex, up 17.5% on year compared with Rs 61,591 crore in FY23.

Besides frontloaded tax devolution, interest-free loans from the Centre helped the states increase their capex. In FY24, the Centre provided around Rs 1.09 trillion in 50-year interest-free loans to all states for asset creation.

Real GDP growth in Q3FY24 was a surprising 8.4% on year, which was largely driven by higher gross fixed capital formation at 10.6% on year due to the Centre, states and CPSEs’ capex thrust.

The 12 states under review reported a 15% growth in their tax revenues in FY24 at Rs 20.73 trillion compared with the 13% growth recorded in the previous year.

The borrowings of these states rose 16% on year to Rs 6.05 trillion in FY24 as against a 13% growth in FY23. Despite the annual increase, the borrowings were lower than projected, indicating that all states’ aggregate fiscal deficit would remain below 3% of GDP in FY24.  The states’ aggregate fiscal deficit stood at 2.8% of GDP in FY22 and FY23, aided by buoyancy in their revenues and containment of revenue expenditures.

The 12 states under review reported a 10% annual increase in revenue expenditure in FY24 to Rs 26.28 trillion compared with 11% growth seen in the previous year.