States fail to meet capex targets due to revenue fall, other factors: Report

Several states are likely to miss their capital expenditure targets for the ongoing fiscal due to polls and a fall in revenue, according to an analysis. A steep fall in revenue receipts will further lead to a major compression in state capex, which during the first half of FY24 rose to a record 35 per cent, Icra Ratings Chief Economist Aditi Nayar said.

To maintain their Budget estimates, 21 states — whose capex and other macro data are available — will have to ensure that the capex run rate is maintained at 28 per cent in the second half, which is unlikely since the model code of conduct is likely to take effect in the March quarter before the general elections, Nayar said.

The combined revenue and fiscal deficits of these 21 states widened to Rs 70,000 crore and Rs 3.5 lakh crore, respectively, in the April-September period, from Rs 50,000 crore and Rs 2.4 lakh crore, respectively, in the year-ago period.

The report excludes Arunachal Pradesh, Assam, Goa, Manipur, Meghalaya, Mizoram, and Nagaland. While the growth of combined revenue receipts and expenditure of these 21 states in the period under review trailed Budget estimates, their capital outlays and net lending was higher.

This was boosted by the early releases under the scheme for special assistance to states for capital investments (or capex loan) in the April-October period of the current fiscal, Nayar said. This contributed to the increase in capex as a proportion of Budget estimates to 35 per cent in the first half of the fiscal from the previous year’s average of 30 per cent, she said.

Revenue receipts and expenditure increase by sub-10 per cent in the April-September period were significantly below the growth budgeted for the year.

The growth in combined revenue receipts of the 21 states slowed to 8.4 per cent in the period under review from 26.4 per cent in the year-ago period, mainly led by a sharp contraction in grants from the Centre. Simultaneously, the annualised growth of combined revenue expenditure of these 21 states eased to 9.6 per cent in the first half from 15.5 per cent a year earlier.

Moreover, both revenue receipts and expenditure trailed the 18-19 per cent expansion indicated in their Budget estimates. Barring Himachal Pradesh, Karnataka, Kerala, Punjab, and Bengal, the capital expenditure of the remaining 16 states expanded in high double-digits.