‘State Budgets signal intent to raise capex outlays’
States are looking to ramp up capital spending and rein in revenue deficits this year as they chart a return to the path of fiscal consolidation following the pandemic shock, and have even factored in the loss of GST Compensation from the Centre, an analysis of major States ‘ 2022-23 Budget shows.
A study of 18 major States’ Budgets by the National Institute of Public Finance and Policy (NIPFP) shows that although they have factored in slower growth this year compared with 2021-22, the State governments aim to reduce revenue spending by 0.13% of Gross State Domestic Product (GSDP) and increase capex by 0.24% of GSDP.
As per their Budget estimates, the States aim to increase revenue spending by an aggregate of ₹3.5 lakh crore and capital expenditure by ₹1.21 lakh crore in 2022-23, over last year’s numbers. If successful, this would help increase the share of States’ capital spending marginally from the 2-2.5% of GSDP levels that it has been hovering around for a long time, according to the study’s authors.
“States have resumed following the path of fiscal consolidation post COVID-19 and success in achieving revenue as well as expenditure targets set in the budget of 2022-23 could help them control deficits and debts,” NIPFP associate professor Sacchidananda Mukherjee concluded on the basis of the 18 States’ Budget math.
The 18 major states included in the analysis are Andhra Pradesh, Karnataka, Kerala, Bihar, Tamil Nadu, Maharashtra, Gujarat, West Bengal, Uttar Pradesh, Madhya Pradesh, Telangana, Haryana, Odisha, Punjab, Chhattisgarh, Goa, Jharkhand and Rajasthan.
On a combined basis, these States have pegged GSDP growth at current market prices to be 12.1% for 2022-23 compared with 14% clocked in 2021-22 as per revised estimates and 3.6% in the COVID-hit year of 2020-21.
“As compared to average annual growth rate achieved during 2016-19, post-pandemic recovery in economic growth rate has not been observed for four states in 2021-22 — Bihar, Goa, Punjab, Uttar Pradesh. In budget estimates of 2022-23, except Goa, Punjab and Uttar Pradesh, all States project a fall in growth rate of GSDP as compared to 2021-22,” the paper’s authors noted, adding that States had adopted a cautious approach in projecting budget. estimates of 2022-23.
While their consolidated fiscal deficit in 2022-23 is projected at 3.29% of GSDP, in line with the Finance Commission’s prescribed glide path of 3.3% of GSDP for the year, they hope to bring down the share of revenue deficit in their fiscal gap sharply. from 50.3% in 2020-21, to 16.% this year. Revenue deficit accounted for 32.4% of these States’ fiscal deficit in 2021-22.
While States have projected a 12.8% growth in total expenditure in 2022-23, 9.77 percentage points lower than the growth in 2021-22, they have set an aggressive target to contain revenue expenditure growth to 11.7% from 19.6% experienced in 2021-22. .
State finances showed signs of improvement in 2021-22 after two consecutive years of fiscal stress during 2019-20 and 2020-21, aided by improved revenue mobilization which helped States increase spending as well as reduce revenue and fiscal deficits in 2021-22, the NIPFP study noted.