India’s States Likely To Spend 29% More Capex In FY24: ICRA

The increase in capex spending will result in the states’ debt level, in relation to their gross domestic product, surging to 30 per cent, up from 28.9 per cent in the previous fiscal year.

The Indian states are expected to spend 29 per cent more on capital expenditure in the current fiscal year, facilitated by the surplus central grants and market borrowings, a report by ICRA Ratings said on Tuesday. The increase in capex spending will result in the states’ debt level, in relation to their gross domestic product, surging to 30 per cent, up from 28.9 per cent in the previous fiscal year, the rating agency stated. 

The overall capex of 13 major states would increase to 29 per cent in the current financial year to Rs 6.2 lakh crore, against Rs 4.8 lakh crore in FY23, reported PTI citing the study. However, ICRA maintained that even after the growth in capex spending on a year-on-year (YoY) basis, the figure is set to be Rs 50,000 crore lower than the Budget estimates of Rs 6.7 lakh crore for FY24. 

The aggregate fiscal deficit of the states for the current financial year is estimated to surge Rs 60,000 crore to touch Rs 8.3 lakh crore, compared to the budgeted estimate of Rs 7.7 lakh crore, the rating agency said. The revenue and fiscal deficit of these states are likely to stand at Rs 2.1 lakh crore and Rs 8.3 lakh crore, respectively, bypassing the FY24 Budget estimates of Rs 1.4 lakh crore and Rs 7.7 lakh crore respectively. 

This will result in increasing the leverage levels, debt, and guarantees, of these states to about 30 per cent of their gross state domestic product, Aditi Nayar, chief economist at ICRA revealed. Some of the 13 states possess sufficient funds to finish 90-100 per cent of their budgeted capex in the current fiscal, while only a few might have to limit their capex by a sizeable margin, like Punjab. 

Some states’ net borrowing ceiling for the current fiscal would be adjusted by the Centre due to their incremental off-budget borrowings in FY22. Icra estimated that the overall revenue deficit of these 13 states would come at Rs 2.1 lakh crore, up from Rs 1.4 lakh crore mentioned in the FY24 Budget estimates and almost twice the Rs 1.1 lakh crore recorded in FY23. 

Nayar further added that these states possess the ‘fiscal space to support robust capex expansion of Rs 6.2 lakh crore, even though they are likely to miss sales tax collection targets’. She added that the potential decline in sales tax collection could be attributed to the entire impact of the excise duty cut on fuels by the government in May 2022 and the dip in VAT rates by several states in November 2021 that would be reflected in the fiscal year. 

The economist stated that the sales tax collection growth could potentially decline to a three-year low of sub-5 per cent in the current fiscal year. Further, the central government’s grants to states could also fall sharply to Rs 3.2 lakh crore, marking this the lowest since FY20, in FY24 as the GST compensation grants have been discontinued.