States have budgeted 36% higher capital expenditure during this financial year, which may lead to a sharp rise in their fiscal deficit to ₹8.4 lakh crore, a report said on Friday.
Registering an increase of 34.1% from the pre-pandemic (FY20) levels, 26 large States, excluding Assam, have spent ₹5 lakh crore in capital expenditure, or ₹1.3 lakh crore more than they had spent in FY20, shows an ICRA analysis of these States’ budgets.
According to the agency, these 26 States are on course to spend ₹6.8 lakh crore or 35.8% more this fiscal in capital expenditure (capex) over FY22 when it stood at ₹5 lakh crore. As much as 72% of the incremental ₹1.8 lakh crore capital push is led by U.P., Maharashtra, Bengal, Odisha, Andhra and Haryana.
In the previous fiscal, the capex push was led by Bihar, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, Telangana, Tamil Nadu and Uttar Pradesh.
The combined capex of these 26 States is budgeted to expand by an impressive 35.8% to ₹6.8 lakh crore in FY23, on top of the 34.1% or ₹5 lakh crore they spent in FY22. In FY20, they spent ₹3.7 lakh crore in capex, while FY21 was a washout due to the pandemic, the agency said.
The report also notes that with this aggressive capex push, these States will also see their fiscal deficits widening sharply to ₹8.4 lakh crore in FY23, from ₹6.3 lakh crore in FY22, and much higher than ₹4.8 lakh crore in FY20.
However, deficit was higher in FY21 at ₹7.9 lakh crore due the higher pandemic expenses and lower revenue.
In FY22, these States had much narrower revenue and fiscal deficits. While revenue deficit was similar to the pre-COVID level, fiscal deficit exceeded the FY20 level on account of higher capex.
In budget estimates for FY23, these 26 States have pegged their revenue receipts, revenue expenditure and capital expenditure at ₹35.8 lakh crore, ₹36.9 lakh crore and ₹6.8 lakh crore, respectively. These numbers are 19.8%, 19.7% and 35.8% higher than FY22 levels, according to the report.
Deficit levels in FY22 were smaller than the revised budget estimates as combined revenue receipts and revenue expenditure were equivalent to 97% and 93%, respectively, compressing their aggregate revenue deficit to 41% of the revised estimates.
With aggregate capex at 90% of the revised estimates, their combined fiscal deficit stood at 75% of the same in FY22.
But the FY22 fiscal deficit is higher than the pre-COVID levels as combined revenue deficit of these States at ₹1 lakh crore in FY22 is in line with the revenue deficit in FY20.