TREND: States step on the gas, capex rises 76% on year in Apr-Jun

TREND: States step on the gas, capex rises 76% on year in Apr-Jun

Informist, Wednesday, Aug 23, 2023


By Priyasmita Dutta


NEW DELHI - States seem to have pressed the accelerator on capital expenditure in the quarter ended June, with 23 states together spending 1.05 trln rupees, up 75.7% year on year. The states had spent 598 bln rupees in the first quarter of 2022-23, according to data from the Comptroller and Auditor General of India.


The 23 states, for which data is available for the first quarter, have spent 13.2% of their combined Budget estimates for 2023-24, pegged at 7.94 trln rupees. The capital expenditure target of these 23 states is 19.3% more than the last year.


"In 2022-23, states did a lot of capex spending at the fag end of last year. It is good they have started doing it early," said Gaura Sen Gupta, India economist at IDFC FIRST Bank.


One of the reasons for the sharp rise in capital expenditure in the first quarter could be due to the Centre front-loading tax devolution in June and releasing a chunk of the 1.3-trln-rupee interest-free loans, Sen Gupta said.


"The states' cash surplus is also in a good position," she added.


The Centre has devolved 2.37 trln rupees to states as their share in taxes in Apr-Jun, up 65.7% from a year ago. The front-loading of the tax devolution is to enable states to speed up their capital spending and other welfare-related expenditures, the finance ministry had said.


Of the 1.3-trln-rupee interest-free loans to states under the special assistance scheme, the Centre has released about 400 bln rupees so far in 2023-24, a top finance ministry official had told Informist last week.


The sharp jump in capital expenditure in Apr-Jun could also be due to the low base effect, Sen Gupta said.


Irrespective of the jump in spending for capital expenditure on a yearly basis, "the picture remains quite sombre", Aditi Gupta, economist at Bank of Baroda, wrote in a research report, pointing at the fact that states have spent only 13.2% of the full year's target in the quarter.


Among the states, Andhra Pradesh has spent 126.69 bln rupees in Apr-Jun, accounting for over 40% of the Budget target for the full year. In the corresponding period last year, it had spent only 7% of the target.


Among the bigger states, Telangana has spent 99.85 bln rupees in Apr-Jun, making up 26.6% of the full year's aim, whereas, in the corresponding period last year, it had spent only 8.1% of the Budget aim. Rajasthan as well spent 75.47 bln rupees in the quarter ended June, or 19.8% of the full year's aim. This is significantly higher than the 30.56 bln rupees it spent in the June quarter of 2022-23, or 8.8% of the Budget aim.


Of these 23 states, nine have spent less than 10% of their full year's aim, data showed. Uttar Pradesh and Maharashtra aim to spend a total of 2.21 trln rupees for capital expenditure in 2023-24, together making up 28% of the combined capital expenditure budget of states. It is imperative they pull up their socks and spend more as so far, they have only spent 6.77% and 4.82% of their targets, respectively.


The sharp improvement in the performance of states on the capital expenditure front comes at a time when the Centre has been pushing investments to revive the economy.


The Centre has more than doubled its capital expenditure target in the last four years to 10 trln rupees in 2023-24 from 4.26 trln rupees in 2020-21.  End


Edited by Manisha Baxla


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