Prodded and aided by the Centre, state governments have maintained a healthy pace of capital expenditure so far in the current financial year. Data gathered by FE of 20 big states showed that these states reported a combined capex of Rs 2.74 lakh crore in April-December of FY22, up 52% on year albiet on a low base. A year ago, these states’ capex declined 21% on year, as the pandemic hit industrial activities and governments had to scale up revenue spending even amid severe revenue constraints.
The capex pace of the states reviewed is impressive even in comparison to level in the same period in FY20, the pre-pandemic year, with a growth of 20%.
The combined capital expenditure of all states need to grow 44% on year to achieve their investment target of Rs 7.23 lakh crore for FY22. Though this looks achievable given the pace in the first three quarters of the fiscal, since the states’ capex had surged in the final months of last fiscal, the target may still be missed by a thin margin. On an year-on-year basis, all states’ capex grew 9% in FY21, compared to decline of 5% in FY20.
Conventionally, capex by states are augmented towards the end of a financial year. Anticipating that states may cut back on capex after spread of Omicron variant of Covid-19 in January, the Centre released an additional installment Rs 47,541 crore tax devolution to states in January to keep the capex momentum going.
The combined capex of states stood at Rs 5.02 lakh crore in FY21, 22% lower than Rs 6.46 lakh crore envisaged in their Budget estimates.
The 20 states mentioned above are Uttar Pradesh, Maharashtra, Tamil Nadu, Madhya Pradesh, Karnataka, Gujarat, Rajasthan, Andhra Pradesh, Telangana, Odisha, Kerala, Bihar, West Bengal, Haryana, Chattisgarh, Jharkhand, Punjab, Uttarakhand, Himachal Pradesh and Tripura.
To boost capex by states, the Centre had frontloaded the entire back-to-back loan component of `1.59 lakh crore to the states in FY22 in lieu of shortfall in release of GST compensation during the current financial year. It had also released an additional installment of central tax devolution to states in November (Rs 47,541 crore) as the Covid’s adverse effect is still to be completely offset.
Among the states reviewed, capex by Uttar Pradesh was Rs 40,308 crore in April-December of FY22, an increase of 131% on-year. Madhya Pradesh’s capex stood at Rs 27,784 crore (up 73%), Tamil Nadu’s at Rs 25,227 crore (66%) and Telangana’s at Rs 22,325 crore (130%).
These 20 states reported a 29% on-year increase in their combined tax receipts to Rs 13.69 lakh crore (against a required rate of 26% by all states to achieve their tax revenue target of `22.85 lakh crore in FY22).
Improved revenue flows have prompted states to curb borrowings, which grew only 2% on year.
The 20 states saw their revenue expenditure rise 13% on year in April-November of FY22, lower than the budgeted rate of 20% growth by all states over actuals of FY21.
Besides states, the Centre also roped in CPSEs for pushing public capex, which is key to an investment-led economic growth revival.
According to the first advance estimates released by the National Statistical Office (NSO), gross fixed capital formation (GFCF) is seen growing 14.9% in FY22 compared with FY21 and 2.6% higher than the pre-pandemic year of FY20. Public capex is the key driver of the growth, as private investments remain largely elusive.
Large CPSEs and departmental arms achieved 30% on-year increase in capital expenditure in the first nine months of the current financial year, by spending Rs 3.8 lakh crore.
The Centre’s capital expenditure in April-December of FY22 stood at Rs 3.92 lakh crore, an annual increase of 27% against a required rate of about 30% to achieve the FY22 target.
