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Most States have precarious debt levels, which will constrain their ability for higher spending on capital expenditure, according to a report by CRISIL.
Debt for eight States (Tamil Nadu, Andhra Pradesh, West Bengal, Rajasthan, Madhya Pradesh, Uttar Pradesh, Uttarakhand, and Bihar) has surpassed a quarter of their Gross State Domestic Products (GSDPs) in the pandemic-impacted fiscal 2021, the credit rating agency said in the report “Sector Vector”.
Only three States (Gujarat, Telangana and Assam) had comfortable debt (that is lower than one-fifth of their respective GDP as per the 2017 Fiscal Responsibility and Budget Management/FRBM review committee recommendations) as per revised estimates of fiscal 2021, it added.
Four States (Maharashtra, Karnataka, Odisha and Haryana) had debt less than or equal to 25 per cent of their GSDPs, said the report.
Capex target overstated
Referring to India’s top 21 States aiming for an ambitious 36 per cent rise in capital outlay this fiscal, CRISIL underscored that last fiscal, they spent 82 per cent of the budgeted capital outlay, posting a modest 11 per cent rise on-year over a low base of fiscal 2020 (which saw a marked dip in actual capex due to post-election lethargy in many States and at the Centre).
“For a number of reasons, we see the 36 per cent target as overstated. Rather, we expect a similar 11-13 per cent rise in capex (capital expenditure) this fiscal too, assuming that States spend 80-85 per cent of the budgeted estimate,”it said.
The agency reasoned that for one, States have been losing share in the Centre-state mix in infrastructure spends since end-fiscal 2019 (see chart below), after a good run in the years prior.
“There is also a discernable shift in the sectors to where the money is flowing. From a steady increase in water supply and urban transport outlays earlier, more funds were directed towards roads last fiscal, that is the pandemic year,”the report said.
Notably, the achievement ratio for roads at 96 per cent far surpasses 82-83 per cent for water, urban transport, and irrigation. “Also, a larger part for funds earmarked for capex was diverted for Covid-related expenses. These trends are expected to continue this fiscal too,” the agency said.
Six States (Gujarat, Maharashtra, Karnataka, Tamil Nadu, Odisha and Jharkhand), more impacted by the second wave, saw a higher diversion of funds for Covid expenditure, resulting in capex falling even below that in the first quarter of fiscal 2020, per the report.
Capex doubled
Capex ‘doubled’ in the first quarter of this fiscal, over a low year-ago base, said the agency. But that really just levelled it up with spends in the first quarter of fiscal 2020.
“Nevertheless, a healthy 36 per cent on-year rise in revenue collection in this fiscal’s first quarter – despite the impact of the brutal second wave – has supported spends. A continuation of this trend is expected to propel capex for the remaining part of the fiscal, too,” the report said
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