Capital outlay of top States will increase by 18-20%

Driving Factors

• Elections in some States, funding support from Centre in form of advance payment
• Capital outlays rose approximately 52% on-year in first 6 months of this fiscal
• Over past 5 years, transport, irrigation have major share in the capital outlays of States

Chennai: The capital outlay of India’s top 18 States has increased by 18-20 per cent this fiscal as against about 14 per cent in fiscal 2023, said CRISIL Ratings Ltd in a report.

According to CRISIL Ratings, the 18 states account for about 90 per cent of the aggregate gross state domestic product of all States.

The States studied by CRISIL Ratings are: Maharashtra, Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, Telangana, Rajasthan, West Bengal, Madhya Pradesh, Andhra Pradesh, Kerala, Odisha, Punjab, Bihar, Chhattisgarh, Haryana, Jharkhand and Goa.

The increase in spending will be supported by healthy goods and services tax (GST) collection, stable and upfront devolution from the central government (share in central taxes, or SICT), and allocation of Rs 1.3 lakh crore (Rs 1 lakh crore budgeted last fiscal) in the form of interest-free loans to all the States for capital expenditure (capex).

This fiscal, States have budgeted a strong approximately 43 per cent increase in their capital outlays from fiscal 2023 levels. If actual spending continues at past averages of 82-85% of the budgeted outlay, it would translate to 18-20 per cent growth this fiscal, said Anuj Sethi, Senior Director, CRISIL Ratings

Here, we expect elections in some States, funding support from the Centre in the form of advance payment of SICT, and strong GST collection to provide the impetus. For the record, capital outlays already rose approximately 52 per cent on-year in the first six months of this fiscal. But a moderation in pace is likely in the second half as the outlay is more evenly distributed this year, Sethi said.

In terms of sectoral mix, on average over the past five years, transport (especially roads and bridges) has 22-26% share in the total capital outlays of States, followed by irrigation (15-20%), water supply & sanitation (WSS) (15-20 per cent).