Some states slowing capex to maintain fiscal discipline: Bank of Baroda report

Chennai: Some states perhaps are curtailing their capital expenditure (capex) to maintain fiscal discipline though there is no one-to-one link between the two, the Bank of Baroda said in a report. According to the report authored by the bank's Economist Dipanwita Mazumdar, in the case of major states like Maharashtra, Gujarat and Karnataka, there are traces of this relationship – capex-fiscal discipline.

In FY23, states have been seen maintaining fiscal discipline as a majority of them have curtailed their fiscal deficit in absolute terms. "However, there is no one-to-one relation between curtailing fiscal deficit and capital spending," Mazumdar said.

According to Mazumdar, in the case of Maharashtra, there has been a capital spending shortfall of Rs 1,287 crore from its Budget estimate and the fiscal deficit, in absolute terms, during the same period, has been reduced by Rs 9,086 crore from its Budget estimates.

For Uttar Pradesh, capital spending has been cut by Rs 3,101 crore and the fiscal deficit has fallen by Rs 4,765 crore.

For Madhya Pradesh, the fiscal deficit has been reduced significantly by Rs 29,532 crore while capital spending has been brought down by Rs 5,438 crore.

For Punjab, the fiscal deficit has been reduced by Rs 8,578 crore, whereas capital spending has been brought down by Rs 5,060 crore.

Thus, the quantum differs according to the state's priority of allocating its spending profile. The majority of the states are in the negative quadrant as both capital spending and fiscal deficit have fallen short of their Budget estimates. Based on the current context, where the focus is on maintaining fiscal prudence by both the Centre and states, some shortfalls might be visible for larger states in terms of capex.

The report also said the actual spending on capital expenditure by the Centre has been at Rs 7.2 lakh crore in FYTD24 (Apr-Jan’24). As a percentage of Budget estimates, the capital expenditure of the Centre is running at 75.9 per cent. "However, for states, it is trailing the Centre. Out of an aggregate of 27 states monitored in the current set, states' capital expenditure stood at Rs 4.7 lakh crore which, as a percentage of Budget estimates, is running far behind at 53.1 per cent in FYTD24, compared to Centre," the report notes.

According to the report, states are performing better in terms of utilisation rate (capital expenditure as a percentage of Budget estimates) when compared to the same period of the previous year, with a total of 17 states faring better. But further comparison reveals that problem areas remain for those like Maharashtra, Gujarat, West Bengal Karnataka, Chhattisgarh and Punjab, which have a long distance to cover in the remaining period.

A plausible explanation could be states are going slow to maintain fiscal prudence. States like Telangana, Haryana and Andhra Pradesh, Bihar, Jharkhand and Madhya Pradesh are on track to achieve their target. Amongst major states, Telangana, Madhya Pradesh, Bihar, Kerala and Haryana have utilised more than 70 per cent of their Budget estimates.

States such as Andhra Pradesh, Himachal Pradesh, Tamil Nadu, Odisha, Jharkhand, Rajasthan, and Uttar Pradesh have utilised more than 50 per cent of their Budget estimates. Capex spending of large states such as Maharashtra and Gujarat has been far lower at 37.5 per cent and 46.4 per cent of their Budget estimates, respectively. Even for West Bengal, Punjab and Chhattisgarh, it is far lower at 44.7 per cent, 32.8 per cent, and 32.7 per cent, respectively, the Bank of Baroda report notes.