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Business News/ News / India/  State capex regains momentum in Q1 but low at 11.8% of budgeted estimates
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State capex regains momentum in Q1 but low at 11.8% of budgeted estimates

At the end of April-June, capex incurred by states stood at ₹65,070 crore, 77% higher than during the first quarter of last fiscal, according to data analyzed by Care Ratings

The previous fiscal has been an outlier due to pandemic-led distortions, especially during the first quarter. The resurgence of second wave during Q1FY22 again slowed the nascent recovery. However, the impact was less severe compared with FY21. (Photo: Mint)Premium
The previous fiscal has been an outlier due to pandemic-led distortions, especially during the first quarter. The resurgence of second wave during Q1FY22 again slowed the nascent recovery. However, the impact was less severe compared with FY21. (Photo: Mint)

As Indian economy is returning to normalcy following lockdowns, capital expenditure incurred by state governments is rising. At the end of April-June, capex incurred by states stood at 65,070 crore, 77% higher than during the first quarter of last fiscal, according to data analyzed by Care Ratings. This compares with state capex of 36,821 crore, 55,019 crore, and 59,812 crore in Q1 of FY21, FY20 and FY19 respectively.

“This is an encouraging sign and indicates that states are finally gaining some ground after the lacklustre performance during the last fiscal. The Centre has also been encouraging states to spend more on capex and the Atma Nirbhar Bharat programme had made allocations of interest-free loans to states for this purpose," said Care Ratings.

The analysis includes 21 Indian states, which account for about 94% capex of all states combined in FY21. The previous fiscal has been an outlier due to pandemic-led distortions, especially during the first quarter. The resurgence of second wave during Q1FY22 again slowed the nascent recovery. However, the impact was less severe compared with FY21.

However, economists at Care Ratings said that although the state capex trend looks positive in terms of absolute figures, the actual capex as a proportion of budgeted estimates (BE) is low at 11.8%. During Q1FY21, the ratio (actual to budget estimate) touched a low of 8% due to pandemic-led disruptions and lack of resources for the states as lockdown had impacted revenue collections, especially of GST, said Care Ratings.

“However, even before the pandemic, the ratio has been on the lower side, ranging between 14 and 11%. The reason is that states do follow wait-and-watch policy where expenditures are matched to revenues as they have to adhere to the fiscal responsibility and budget management (FRBM) norm," Care Ratings said.

The final push is given to capex in the last few months of the year when there is more clarity on the fiscal deficit numbers. In case revenues fall short and the borrowing programmes are constrained, they do tend to cut back on capex, which is a discretionary expenditure unlike other elements such as salaries, subsidies, and interest, which have to be paid in the normal course, according to Care Ratings.

The overall picture has been slightly different at central government level where the capex during Q1FY21 rose to 88,273 crore, a 40% jump compared with the previous fiscal. During the first quarter of the current fiscal, the capital expenditure stood at 1.11 trillion, which is 20% of the FY22 budgeted estimate and is 26% higher than the capex during Q1FY21.

In relative terms, the Centre has tended to spend around one fifth of the budgeted amount in the first quarter of the year. “Clearly with uncertainty in flow of revenue being a concern, even the Centre has been slow on capex to begin with," said Care Ratings.

At aggregate level, states with higher gross domestic product (GDP), undertook higher capital expenditure during the first quarter of FY19 and FY20. The trend however, got reversed during the last and current fiscal with states in the higher GSDP category falling behind the middle category states, showed the analysis.

“While the central government managed to accelerate capital expenditure despite the pandemic, states have been challenged to match the pace due to the financial constraints. Higher borrowing limit for states at 5% of GSDP in FY21against the earlier 3% provided some relief. However, muted tax revenue coupled with higher revenue spending aggravated the pandemic blues resulting in dismal performance during Q1FY21," said Care Ratings.

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Published: 10 Sep 2021, 03:52 PM IST
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