States capital spends inch up just 2.2% in first half despite massive spike in revenues

Revenue deficits of these 18 states have narrowed to a low Rs 30,000 crore in the first half of the current fiscal from Rs 1.3 lakh crore in the corresponding period in FY22.

This revenue tailwind comes in spite of these states budgeting for a combined revenue deficit to Rs 1.4 lakh crore in FY23 from Rs 1.1 lakh crore in FY22.

Despite this, their combined capital outlay rose by a muted 2.2 percent in H1, sharply lower than the high 37.8 percent growth indicated in their budgets, necessitating a sharp 57 percent increase in H2 to achieve the target, the agency said in a weekend note.

The 18 states covered in this note are Andhra Pradesh, Chhattisgarh, Gujarat, Haryana, Himachal, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Odisha, Punjab, Rajasthan, Tamil Nadu, Telangana, Uttar Pradesh, Uttarakhand and Bengal.

These states have budgeted a combined capital outlay of Rs 6.2 lakh crore for this fiscal. This means that to use the budgeted outlay their spending will have to jump by 57 percent (or by 4.6 lakh crore) in the second half of the fiscal to meet the 37.8 percent increased capex, which looks ambitious and thus the states are going to miss the capital outlay target by a sizeable extent, it said.

These states saw their combined revenue rising by 27 percent to Rs 13.9 lakh crore in the first half of FY23 from Rs 10.9 lakh crore in H1FY22, on better tax collections.

The states’ own tax revenues rose a higher 28.6 percent in the first half year-on-year. The combined revenue receipts of these states were equivalent to 43 percent of the budget estimate and higher than the year-ago period but lower than H1 of FY20.

Among these states, Chhattisgarh, Gujarat, Karnataka, Maharashtra, Tamil Nadu and Bengal have already received 50-53 percent of their budgeted own tax revenues. Additionally, tax devolution from the Centre expanded by a sharp 44.6 percent in H1 year-on-year.

This led to the revenue deficit coming down to Rs 30,000 crore from Rs 1.3 lakh crore for 14 of these 18 sample states and, in spite of this, the combined revenue spending of these 18 states increased by 15.3 percent in first half, or 42 percent of the budget estimate.

Despite this, their combined capital outlay in the first half was at Rs 1.59 lakh crore, which is a muted 2.2 percent higher than the year-ago period. The capital outlay in first half was a modest 26 percent of the combined budget estimate with that of Haryana, Jharkhand, Maharashtra, Odisha, Punjab, Uttarakhand and UP below/equal to 20 percent of their respective budgeted targets.

Of these states, Andhra, Bengal, Haryana and UP have budgeted for a high 77-127 percent growth in their capital outlays for the fiscal. For the combined capital outlay of these 18 states to be in line with the budget estimate of Rs 6.2 lakh crore, it would imply spending Rs 4.6 lakh crore or a sharp 57 percent higher spending in the second half of this fiscal than the actual capital outlay of Rs 3 lakh crore in H2FY22.

However, looking at the trend of lower-than-budgeted capital outlays as well as back-ended spending in recent years, the agency says these states’ capex will be lower by at least 23 percent of the budgeted target.

However, Karnataka (52.8 percent) and Himachal (50.4 percent) had revenue receipt exceeding 50 per cent of their budgeted target, whereas for Andhra Pradesh, Haryana, Telangana and UP it was below 40 percent and for the remaining 12 states, it varied in the 40-49 percent.

The states’ own tax revenue, which comprised nearly half of the total revenue receipts, expanded by 28.6 percent to Rs 7.6 lakh crore in H1 from Rs 5.9 lakh crore a year ago, which was 47 percent of the budget estimate.  The own tax revenue of 12 of the 18 states was in the range of 40-49 percent of targets, and that of Bengal, Chhattisgarh, Gujarat, Karnataka, Maharashtra, and Tamil Nadu was moderately higher in the range of 50-53 percent of the budgeted target.

Tax devolution of these states constituted 24 percent of their combined revenue receipts in FY22 and the agency estimates the share of these states in the aggregate tax devolution of Rs 3 lakh crore, which is 45 percent more than the previous year, primarily boosted by the release of Rs 1.2 lakh crore payout in August. Notably, the tax devolution in FY22 was highly back-ended, with nearly 70 percent coming in the second half.

Reflecting the healthy growth of gross tax revenues of the Centre, the agency expects tax devolution to touch Rs 9.3 lakh crore in FY23, higher than the Rs 8.2 lakh crore budgeted for. Of these the Centre has released Rs 5.6 lakh crore already.

On the other hand, central grants rose by a mild 3.5 percent to Rs 2.2 lakh crore in the first half from Rs 2.1 lakh crore, which is sharply lower than the high 49.2 percent budgeted growth in the aggregate grants of these 18 states in FY23 over FY22.