States signal intent to raise capex spend

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States signal intent to raise capex spend

States aim to ramp up capital spending and rein in revenue deficits this year as they chart a return to fiscal consolidation following the pandemic shock, and have even factored in the loss of GST Compensation from the Centre.

The Study

  • A study of 18 major States’ budgets by the National Institute of Public Finance and Policy (NIPFP) shows that although they have factored in slower growth this year, the States aim to reduce revenue spending by 0.13% of Gross State Domestic Product (GSDP) and increase capex by 0.24% of GSDP.
  • If successful, this would help increase the share of States’ capital spending marginally from the 2-2.5% of GSDP levels that it has been hovering around for long, according to the study’s author.
  • States have resumed following the path of fiscal consolidation post COVID-19 and success in achieving revenue as well as expenditure targets set in the budget of 2022-23 could help them control deficits and debts,”
  • The States studied are Andhra Pradesh, Karnataka, Kerala, Bihar, Tamil Nadu, Maharashtra, Gujarat, West Bengal, Uttar Pradesh, Madhya Pradesh, Telangana, Haryana, Odisha, Punjab, Chhattisgarh, Goa, Jharkhand and Rajasthan.

Signs of improvement

  • While their consolidated fiscal deficit in 2022-23 is projected at 3.29% of GSDP, in line with the Finance Commission’s prescribed glide path of 3.3%, they aim to cut the share of revenue deficit sharply from 50.3% in 2020-21, to 16%. Revenue deficit accounted for 32.4% of fiscal deficit in 2021-22.
  • State finances showed signs of improvement in 2021-22 after two consecutive years of fiscal stress, aided by improved revenue mobilisation which helped States increase spending as well as reduce revenue and fiscal deficits in 2021-22, the NIPFP study noted.