Rating agency ICRA sees a sample of 13 Major State Governments’ going on a Capex spending push, increasing their aggregate expenditure on this front by 29 per cent to ₹6.2 lakh crore (₹4.8 lakh crore) this fiscal.
These 13 States are however likely to miss —albeit modestly—their budget estimate for FY24 pegged at ₹6.7 lakh crore.
The 13 States forming part of ICRA’s sample are Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Tamil Nadu, Telangana, Uttar Pradesh and West Bengal. The combined GSDP at current prices of these states comprised nearly 83 per cent of India’s GDP in FY22.
The anticipated YoY surge in capex benefits from the prescient support extended by the Central Government to the state governments through the increase in the allocation for the Scheme for Special Assistance to States for Capital Investments to ₹1.3 lakh crore in FY24 BE from the ₹0.8 lakh crore loans disbursed to them in FY23, said Aditi Nayar, Chief Economist, Head - Research & Outreach, ICRA Ltd.
Nayar said the sample of 13 major states has the fiscal space to support a robust 29 per cent expansion in capital spending to ₹6.2 lakh crore in FY24.
This is in spite of a likely miss in sales tax collections and grants from the Centre, relative to the states’ FY24 targets, adjustments related to off-budget borrowings, and the planned step-down in the base borrowing limit of the state governments to 3.0 per cent of GSDP in FY24 from 3.5 per cent in FY23, she added.
With revenues likely to trail the budgeted targets, ICRA estimates revenue and fiscal deficits of the sample set at ₹2.1 lakh crore and ₹8.3 lakh crore respectively, in FY24, exceeding the budgeted ₹1.4 lakh crore and ₹7.7 lakh crore, respectively. Moreover, the leverage (debt + guarantees) level of the sample states is estimated to rise to 30 per cent of the Gross State Domestic Product (GSDP) in FY24 from 28.9 per cent in FY23.
ICRA projects several states in the sample have adequate funds for completing 90-100 per cent of their budgeted capex in FY24, while a few states may have to compress their spending by a sizeable extent such as Punjab.
Notably, some states’ net borrowing ceiling (NBC) for FY24 would be adjusted by the GoI on account of the incremental off-budget borrowings, which they had raised in FY22.
The full impact of the cut in the excise duty on fuels by the Central Government in May 2022 as well as the reduction in the VAT rates by several states in Nov 2021, which were subsequently not fully reinstated by most of the states, will get reflected in sales tax collections of FY24.
Despite the wearing-off of the base effect of the excise duty cut on fuels, ICRA expects the sales tax collections to record a three-year low YoY growth of sub-5 per cent in FY2024.
This is in divergence with ICRA’s expectations of a healthy 14-15 per cent growth in the state GST and stamps and registration collections and around 11 per cent growth in the excise duty collections of the states in FY24.
Additionally, ICRA projects the grants from the Centre to the states in FY24 to decline sharply from the year-ago level, mainly on account of the discontinuation of GST compensation grants and because of the tapering nature of Finance Commission-recommended grants.
Despite the end of the GST compensation period in June 2022, eight out of the 13 states in the sample set included such grants in their FY24 BE, the full release of which appears unlikely.
Moreover, some of the states in the sample expect the grants for various schemes in FY24 BE to be as large as 2-6 times the amount received in FY23. This is out of line with the trends in the YoY growth of such grants seen in recent fiscals, Nayar said.
Therefore, ICRA estimates total grants to the 13 states at ₹3.2 lakh crore in FY24, nearly two-thirds of the budgeted amount and the lowest since FY20.