States' Capex Set To Rise But Less Than Budgeted
India’s major states, helped by an improvement in revenue in the first quarter of the current fiscal are likely to step up capital expenditure. The spending boost, however, is unlikely to be as large as budgeted for, according to rating agencies.
India’s top 21 states, which account for more than 90% of aggregate state capital expenditure, had budgeted for a 36% increase in capital outlay to Rs 6 lakh crore in FY22 over revised estimates of FY21, according to data collated by Crisil.
However, the actual increase is expected to be closer to a rise of 11-13%, assuming that states spend 80-85% of the budgeted estimate, the report said. Last fiscal, states saw a rise of 11% annually over a low base of FY20 when they spent 82% of the budgeted capital outlay.
According to a separate analysis by ICRA, capital spending across the 19 largest states marginally surpassed pre-pandemic levels in the April-June 2021 quarter.
At an estimated Rs 0.6 lakh crore in Q1 FY22, capex across these states rose 2.6% from the pre-pandemic level seen in Q1 FY20. Capital spending by these states had contracted 53.4% to Rs 0.3 lakh crore in Q1 FY21 from Rs 0.6 lakh crore in Q1 FY20.
Both rating agencies said the revenue position of states has been healthy so far this year, supporting continued spending.
According to data collated by ICRA, the combined revenue receipts of the 19 states increased 30.2% in Q1 FY22 on an annual basis to Rs 4.4 lakh crore.
However, states’ combined revenue receipts in Q1 FY22 were only 2% higher than the pre-Covid level of Rs 4.3 lakh crore in Q1 FY20.
A continuation of this trend is expected to propel capex for the remaining part of the fiscal, too.CRISIL
According to Crisil, there have been some exceptions to this trend.
Six states, including Gujarat, Maharashtra, Karnataka, Tamil Nadu, Odisha and Jharkhand, which were more impacted by the second wave, saw a higher diversion of funds for Covid expenditure, resulting in capex falling even below that in the first quarter of FY20, according to Crisil
States have been losing share in the centre-state mix in infrastructure spends since end-FY19, according to Crisil's analysis. The nature of spending, too, has shifted from water supply and urban transport outlays previously, to more roads last fiscal, the report said.
Notwithstanding the improvement in revenue, fiscal balances in Q1 FY22 were weaker than the pre-Covid level, according to the analysis by ICRA.
The combined fiscal deficit of the 19 states it analysed declined modestly to Rs 1.1 lakh crore in Q1 FY22 from Rs 1.3 lakh crore in Q1 FY21, but was twice as much from Q1 FY20. Their revenue balance has slipped into a deficit in Q1 FY22, in contrast to the small surplus in Q1 FY20, partly on account of the increase in pandemic-related spending, according to ICRA.
Most states have precarious debt levels, Crisil added.
Only three had comfortable debt as per revised estimates of FY21, which is defined as lower than one-fifth of their respective GDP as recommended by the 2017 FRBM review committee.
These elevated debt levels would constrain states’ ability to spend more on capital expenditure.
State development loans issuance in Q1 FY22 was lower than indicated as well as year-ago level, while sharply exceeding Q1 FY20. The issuance of SDLs by 21 states increased 77.3% to Rs. 1.4 lakh crore in Q1 FY22 from Rs 0.8 lakh crore in Q1 FY20, according to ICRA.
While this was nearly 19% lower than a year ago, a few states, such as Andhra Pradesh, Haryana, Kerala, Rajasthan and Telangana, borrowed a larger amount than what they had originally indicated for the quarter.