The capital expenditure by Central and State governments have crossed their pre-pandemic levels faster than the gross domestic product. While Covid necessitated huge spends by governments around the world, there was a simultaneous decline in their revenues, which led to higher fiscal deficit and debt, said a study by Crisil Ratings.
India’s fiscal deficit widened to 9.4 per cent of GDP in fiscal 2021 from 4.6 per cent logged in fiscal 2020. Despite this, the Central government capex was 31 per cent higher year-on-year this fiscal while that of States registered a modest rise over the low base of fiscal 2020.
The State capex is typically 1.4 times higher than that of Central government, thereby playing the predominant role in infrastructure building. This fiscal, the Centre has begun pruning certain spends, mainly revenue expenditure, as pandemic-related relief measures are rolled back, even as revenue collections have improved.
In the first half of this fiscal (April-September), the Centre had spent 41 per cent of its budgeted target for the entire year. On the other hand, State governments have managed to spend 29 per cent of their targets.
Government capex for April-October was ₹2.5 lakh crore. This is 28 per cent higher year-on-year (on a low base) and 26 per cent higher than the pre-pandemic, or fiscal 2020, level for the same period
Major capex has gone into road transport and highways, railways, housing, telecommunication, and health. Separately, rural development spending on rural roads, housing, and other infrastructure showed a 14 per cent increase over pre-pandemic levels, said the report.
In the first half capex of 16 States rose 78 per cent year-on-year. It was 17 per cent higher than in the same period pre-pandemic. These states had spent 29 per cent of their budget estimates in the first half.
While this might seem low, States typically tend to spend most of their capex budgets towards the end of the year.
Of the 16 States, six (Chhattisgarh, Kerala, Madhya Pradesh, Punjab, Rajasthan and Telangana) achieved the target set by the Ministry of Finance of spending 45 per cent of budget estimates by the first half.
This makes them eligible for availing of additional borrowing of 0.5 per cent of gross state domestic product for incremental capex in this fiscal.
On the other hand, Maharashtra, Odisha and Jharkhand lagged, having spent less than 20 per cent of budgeted capex in the first half.