Lagging behind. State capex to remain subdued in FY24 as well

Despite a healthy growth in revenues and a lower fiscal deficit, several States lagged behind their annual capex target in FY23. According to economists, State’s capex spends are likely to remain subdued even in the current fiscal with moderation in tax revenues, rising expenditure and slowing economic momentum.

In FY23, the Centre overachieved its capital expenditure (capex) with ₹7.36-lakh crore as against its Budget Estimate (BE) of ₹7.28-lakh crore. The total capex includes both Centre’s capex as well as the loans disbursed to States for the purpose of capital expenditure.

On the other hand, most large States have under-achieved their budgeted capex targets by a wide margin in FY23. According to a Bank of Baroda analysis, a total of 25 States budgeted ₹7.49-lakh crore in capex in the previous fiscal. However, these States spent only ₹5.71-lakh crore or 76.2 per cent of the total capex budget.

Andhra Pradesh was the worst performing State in terms of meeting its FY23 capex target, achieving only 23 per cent of its full year target of ₹29,917 crore. Thirteen other States, including Maharashtra, Uttar Pradesh, Telangana and Punjab, too, met less than 80 per cent of their annual capex targets.

“Presently, the heavy lifting (of capex) is being done by the Centre which is not adequate as the budgeted expenditure of the two levels of government are almost similar,” the report said.

Modest growth

Economists say the capex spends of States could be moderate in the current fiscal, too. Madan Sabnavis, Chief Economist, Bank of Baroda, said capex may remain muted for most States as revenues will be uncertain with lower (economic) growth expectations.

“On the positive side, due to the general elections coming up there may be some urgency shown by the ruling governments but the end result will depend on buoyancy in revenue,” he added.

Several States have also projected optimistic revenue targets for FY24. However, economists say when States are unable to achieve such ambitious revenue targets, they typically cut back on expenditure, which will invariably be capex. Emkay Global said States’ tax buoyancy (ratio of tax revenue growth to GSDP growth) has been higher than the Centre’s occasionally in the past but the FY24 BE numbers look overly optimistic.

“Especially State GST which accounts for 40 per cent of aggregate State own tax revenues, stamp duty (interest-rate sensitive) and vehicle tax (regularisation after post-Covid boom) collections are also expected to moderate,” it said, adding that any threats to revenues will only imperil State’s capex spends.

The achievers

While 14 States achieved less than 80 per cent of their FY23 capex targets, 11 States achieved more than 80 per cent. Karnataka, Sikkim, Arunachal Pradesh and Bihar achieved over 100 per cent of their annual target.

According to Bank of Baroda, not enough projects to execute, lacunae in planning and execution, over budgeting of capex spends and States’ tendency to wait till the year end to see their fiscal position are some of the reasons for them to miss their capex targets.

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