States’ capital expenditures likely fell by nearly 9% year over year in the first six months of the current financial year even as their revenue spending rose at a faster pace during the period.
A review of the finances of 17 states by FE, showed that their capex in April-September of FY25 declined 8.6% on year to about Rs 1.98 lakh crore compared with Rs 2.17 lakh crore with an annual growth of 51% in the year-ago period.
The states reviewed were Karnataka, Uttar Pradesh, Madhya Pradesh, Andhra Pradesh, Maharashtra, Tamil Nadu, West Bengal, Bihar, Haryana, Kerala, Punjab, Rajasthan, Telangana, Chattisgarh, Uttarakhand, Himachal Pradesh and Assam.
Sensing the states’ resource crunch, the Centre frontloaded tax devolution to them by releasing two instalments amounting to Rs 1.78 lakh crore for October instead of one regular monthly instalment. In June, the Centre also released two monthly instalments.
However, the states are yet to recover from the general election and rain-induced slowdown in asset-creating spending.
The 17 states under review reported an 13.3% growth in their tax revenues in H1FY25 at Rs 12.71 lakh crore compared with the 14.73% growth recorded in the year-ago period.
These states’ borrowings rose by modest 12.8% on year to Rs 3.9 lakh crore in April-September of FY25 as against a 37.52% growth in the year-ago period.
The states under review reported a 12% annual increase in revenue expenditure in the first six months of FY25 to Rs 16.5 lakh crore compared with the 8.6% growth seen in the year-ago period.
India Ratings on Tuesday said states’ aggregate capex in H2FY25 would increase to 1.4%-1.5% of GDP compared with 1.3% of GDP in the year-ago period. The agency analysed the latest accounts of 21 state governments. The states’ capex in H1FY25 was 0.7% of GDP, down 13bp on year. These 21 states have budgeted capex in FY25 budget estimate (BE) as 2.4% of GDP.
“We expect the states to increase capex spending further in H2FY25 to cover the shortfall in targets in H1FY25. This may translate into a further improvement in the quality of expenditure in H2FY25 compared to H1FY25 and would also provide support to the investment demand in the economy”, said Paras Jasrai, Senior Analyst, at India Ratings.
Like states, the Centre and CPSEs capex in H1FY25 are also lagging behind the achievements in the year-ago period.
Given the thrust on capex-driven economic growth and employment generation, Finance Minister Nirmala Sitharaman exhorted central ministries to expedite capital expenditure and make up for the shortfalls in the first half of the current financial year in the third quarter itself.