Most States Likely To Meet Capex Targets For FY22: TV Somanathan
Why Expenditure Secretary TV Somanathan thinks states are likely to meet their capex targets for FY22.
As economic growth recovers after the Covid-19 pandemic, the central government is keen on ramping up capital expenditure by states.
“Most states (are) likely to meet (capex targets) as they’re progressive. You can meet it in subsequent quarters and become eligible (for additional borrowings),” Finance and Expenditure Secretary TV Somanathan told BloombergQuint in an interview. “Central capex is almost right on target.”
As many as seven states were eligible for additional borrowing, amounting to Rs 16,691 crore, after Union Finance Minister Nirmala Sitharaman, earlier this month, reviewed capex spending by states for the first half of the ongoing fiscal. The states were Chhattisgarh, Kerala, Madhya Pradesh, Meghalaya, Punjab, Rajasthan and Telangana.
Explaining the allotment based on capex targets, Somanathan said, “The way the target is figured is that, if you meet 15% in Q1, you immediately become eligible. If you meet a certain percentage in Q2, you become eligible as well. And even if you miss those, you can still become eligible in Q3 if you meet the Q3 target... It’s a progressive target which you can become eligible for whenever you hit it.”
The government has targeted Rs 5.54 lakh crore of capex in FY22, according to this year’s annual budget. That also includes Rs 40,374 crore in loans. Of the remaining amount, the federal government has spent Rs 2.09 lakh crore during the first six months—or around 41% of its target for FY22.
States Being Conservative?
States, according to a CARE Ratings report dated Nov. 24, may increase their capex only in the last quarter of the fiscal. The report attributed the trend to higher levels of fiscal deficit and debt. The 27 states—the report said citing their budget estimates—already have interest commitment amounting to Rs 4.25 lakh crore for FY22.
Many states are driving back allotted money into treasury bills, dialling up the government’s balance with the RBI, Somanathan said.
Somanathan termed it a “mismatch between borrowing and expenditure”. “A lot of expenditure is back-loaded this year,” he said. “Some of the money that has been released to the states comes back immediately as investments in treasury bills…”
The government doubled the tax devolution amount to states to Rs 95,082 crore in November to help them meet their infrastructure needs. Capex spends by states is expected to be reviewed the third time this fiscal in March 2022.