Tamil Nadu lags on capex despite robust revenue growth

Despite a strong growth in revenue receipts and buoyant tax collections in the current fiscal, Tamil Nadu has tightened the purse strings on capital expenditure, which is essential to spur economic activity and create more jobs.

According to the provisional figures from the Comptroller and Auditor-General (CAG), Tamil Nadu has spent ₹21,476 crore on capital expenditure between April and December. The spending, in the first nine months, accounts for 48 per cent of the State’s budgeted capital expenditure of ₹44,863 crore for FY23. In contrast, the State spent 57 per cent of its budgeted capital expenditure during the same period in FY22. 

In terms of actual capital spends, Tamil Nadu lags behind Uttar Pradesh (₹43,071 crore), Karnataka (₹29,819 crore), Madhya Pradesh (₹25,797 crore), and Maharashtra (₹24,913 crore). Although, in percentage terms, Uttar Pradesh and Maharashtra have achieved only about 30 per cent of their annual capex targets during the nine-month period. Uttar Pradesh has set an ambitious capex target to ₹1,35,677 crore for FY23. 

Buoyant tax collections

The slowdown in capital spending comes at a time when the State has recorded a robust growth in revenue receipts aided by buoyant tax collections. As against the budget estimate of ₹231,407 crore of revenue receipts for FY23, the State has achieved 71 per cent during April-December period, as opposed to 66 per cent during the same period of the previous fiscal. The state own tax revenues (SOTR) also touched 77 per cent of the annual target compared to 67 per cent during the same period in FY22. 

In December, Tamil Nadu Finance Minister Palanivel Thiaga Rajan said the State’s capital expenditure will see a three-fold jump to ₹90,000-95,000 crore in the next three years amid improving financial position.  

Targeting debt, deficit

KR Shanmugam, Director, Madras School of Economics, says if the State is holding back on capital expenditure despite higher revenues, then the idea could be to first bring down the fiscal deficit and debt levels before splurging on capital spending.  

The 15th Finance Commission had recommended a normal borrowing ceiling of 3.5 per cent of GSDP for the year 2022-23 and incentive-based extra borrowing space of 0.50 per cent for power sector reforms.

In the recently concluded Assembly session, Tamil Nadu Finance Minister Palanivel Thiaga Rajan said the State government will strive to stay within the fiscal deficit target and manage the debt to GSDP ratio within the prescribed limits through revenue augmentation and effective fiscal consolidation.

However, the State’s revenue expenditure in the first nine months already reached 63 per cent of the budgeted target as against 57 per cent during the same period in FY22. The State’s interest expenditure alone touched 61 per cent of the annual target during April-December, as against 31 per cent during the same period in FY22. 

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