States’ capex up just 2.2% in H1 FY23 despite big spike in revenues: Icra

The capital expenditure (capex) of 18 states has risen just 2.2 per cent in the first half of the current fiscal even as their combined revenue deficit has narrowed to more than one-fourth from the year-ago period, according to a report.

This means that there has to be a massive 57 per cent increase in their capital outlays to meet their FY23 budgeted target, Icra Ratings said in an analysis on the available numbers from 18 of the largest states, which have budgeted for a combined capital outlay of ₹ 6.2 lakh-crore. These states have collectively spent only ₹1.59 lakh-crore so far this fiscal, which is just about a growth of 2.2 per cent annualised.

The revenue deficits of these 18 states have narrowed to a low ₹30,000 crore in the first half of the current fiscal from ₹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 ₹1.4 lakh-crore in FY23 from ₹1.1 lakh-crore in FY22.

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

Need for 57% jump

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 West Bengal. 

These states have budgeted a combined capital outlay of ₹6.2 lakh-crore for this fiscal. This means that to use the budgeted outlay their spending will have to jump by 57 per cent (or by ₹4.6 lakh-crore) in the second half of the fiscal to meet the 37.8 per cent increased capex, which looks ambitious. Thus, the states are going to miss the capital outlay target by a sizable extent, Icra said.

These states saw their combined revenue rising by 27 per cent to ₹13.9 lakh-crore in the first half of FY23 from ₹10.9 lakh-crore in H1 FY22, on better tax collections. The states’ own tax revenues rose a higher 28.6 per cent in the first half year-on-year. The combined revenue receipts of these states were equivalent to 43 per cent 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 per cent of their budgeted own-tax revenues. Additionally, tax devolution from the Centre expanded by a sharp 44.6 per cent in H1 year-on-year.

Revenue deficit drops

This led to the revenue deficit coming down to ₹30,000 crore from ₹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 per cent in the first half, or 42 per cent of the budget estimate.

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

Of these states, Andhra, Bengal, Haryana and UP have budgeted for a high 77-127 per cent 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 ₹6.2 lakh-crore, it would imply spending ₹4.6 lakh-crore or a sharp 57 per cent higher spending in the second half of this fiscal than the actual capital outlay of ₹3 lakh-crore in H2 FY22.

Mixed trend

Yet, 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 per cent of the budgeted target.

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

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

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

Higher tax devolution

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

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