Union Budget 2018: In first 8 months of FY18, states have gone slow on capex

Hemmed by rising expenditure on account of farm loan waivers and Pay Commission proceeds, state governments have slowed down the pace of capital expenditure in the current financial year.

An analysis of 17 state government accounts reveals that nine states have so far spent only 36 per cent of their budgeted capital expenditure in the current financial year (April to November), compared with 47 per cent over the same period the previous financial year. Capex by two other states is marginally lower than last year, while only six states have spent a greater proportion of their budget this year compared to last year.

The analysis also reveals that eleven of these states have received only 31 per cent of their budgeted grants in aid from the Centre in the current financial year (April to November), against 40 per cent over the same period last year.

Put together, state governments spend more on capital expenditure than the Centre. As such, it is imperative to explore their expenditure patterns in greater detail.

Data from the comptroller and auditor general (CAG) show that the nine states had a budgeted capex of Rs 2.44 trillion in 2017-18. But of this, states had spent only 36 per cent by the end of November. By comparison, over the same period last year, these states had spent more than 47 per cent of their budgeted amount by this time.

Of these nine states, the gap is the widest in Haryana, Punjab and Uttar Pradesh.

Take the case of Haryana, for instance. Against a budget capex of Rs 161.96 billion, the state has spent only Rs 83.67 billion, or 51.6 per cent. By comparison, over the same period last year, it had spent more than 76 per cent of its budgeted amount.

For Punjab, the gap is even more. Till the end of November, Punjab had spent only 15.6 per cent of its budgeted capex of Rs 61.5 billion, compared with 62.5 per cent last year. In the case of Uttar Pradesh, the comparable estimates are 26.8 per cent and 50.7 per cent, respectively.

Now, the worry is, since much of state revenue expenditure is sticky in nature – it comprises salaries, etc – state governments are likely to offset any shortfalls in revenue by cuts in capital expenditure. With private investment still sluggish, public investment is critical for a revival in the investment cycle. As such, cuts in capex by state governments would negatively impact an investment revival.

Now, in addition to their share of taxes collected by the central government, state governments also receive grants in aid from the Centre. These grants comprise Finance Commission-mandated grants, as well as scheme-related transfers like those for centrally-sponsored schemes, sector schemes and others.

In its last Budget, the Centre had accounted for a total of Rs 1.03 trillion to be transferred as Finance Commission grants and another Rs 2.12 trillion was budgeted for scheme-related transfers to states. And then there also were other grants.  

An analysis of the state government accounts reveals that a large number of states have received a lower proportion of grants in aid (as a percentage of budgeted target) from the Centre in the current financial year (April to November), when compared to the same period the previous financial year.

Of the 17 states, grants in aid totalled Rs 3.05 trillion for 11. By the end of November, these states had received only 31 per cent of the budgeted amount, compared with 40 per cent last year.

The difference was the most in Andhra Pradesh, Maharashtra and Telangana.

In the case of Andhra Pradesh, against a budgeted amount of Rs 375 9 billion, the state has so far (April to November) received only Rs 94.9 billion, which roughly translates into 25 per cent. By comparison, last year, it had received close to 40 per cent by this time.

In the case of Maharashtra, it has received 41.9 per cent this year, compared with 57 per cent last year, while for Telangana the comparable estimates are 19 per cent and 32 per cent, respectively.