The revenue expenditure, or spending on social welfare schemes, by the top 11 Indian states, is expected to touch a decadal high of Rs. 4 lakh crore, according to a report by CRISIL, released on Wednesday. This value accounts for about 1.7% of GSDP (Gross State Domestic Product), which is a major jump from an average of 1.2-1.3% of GSDP before fiscal 2018. 

The term “revenue expenditure for social welfare” usually refers to payments like financial incentives, direct transfers, and the distribution of home or personal goods. However, as these are funded individually, they do not include spending on public health, agriculture, or other important sectors. 

The top 11 states analysed for this study were Maharashtra, Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, Telangana, Rajasthan, West Bengal, Madhya Pradesh, Andhra Pradesh, and Kerala. 

Salaries, pensions, and interest payments, a rigid but major element of revenue expenditure, are estimated to log a compound annual growth rate (CAGR) of 9% between fiscals 2018 and 2024. 

“Expenditure on social welfare schemes is estimated to clock a 16% CAGR between fiscals 2018 and 2024, much faster than the 11% growth in overall revenue expenditure. The higher growth on social welfare schemes is due to states prioritizing financial assistance to certain target demographics in the form of direct transfers, pensions, and cash incentives, and, in some instances, to honour election commitments,” said Anuj Sethi, Senior Director, CRISIL Ratings. 

The Covid-19 and continuing focus on post-pandemic allocations clocked a 12-13% CAGR over the six-year period in public health spending, under non-committed revenue expenditure. Education and agriculture accounted for single-digit growth allocations of 7-9%, according to the report. 

“The higher allocation towards welfare schemes has come during a period when capital expenditure (capex) is estimated to log a CAGR of 11%, keeping it range-bound at 2.0% of GSDP. Higher allocation for capex or towards education and health has a relatively higher impact on uplifting revenue and productivity for states in the near to medium term,” added Aditya Jhaver, Director, CRISIL Ratings. 

The states recorded 10-11% overall revenue expenditure growth over an estimated six-year CAGR, with social welfare at 15-16% as the component with highest growth rate, according to CRISIL. Without an increase in revenues, the state credit profiles may be impacted in the long run since social welfare allocation is essential for Indian demography, the report mentioned.     

Revenue Expenditure Components Estimated 6-year CAGR (FY 2018-2024)
Agriculture and allied activities 7-8 per cent
Education 7-9 per cent
Salaries, pensions, and interest payments 8-9 per cent
Power 8-9 per cent
Public health 12-13 per cent
Social Welfare 15-16 per cent

Source: State budgets, CAG, CRISIL Ratings