Amid increasing demand and capacity utilization in the industry, state governments have calibrated their capital expenditure. The combined capital expenditure of twenty states, whose finances were reviewed by FE, declined 9% year-on-year to Rs 55,0057 crore in the June quarter. These states, which represent around 80% of the country’s gross domestic product (GDP), had registered 118% capital expenditure growth in the first quarter of FY12, partially aided by a favorable base.

States have controlled capital expenditure, seeing a trend of acceleration in recent years due to concerns over revenue after the abolition of Goods and Services Tax (GST) compensation. Also, market borrowings of several states have been hit as there has been a delay in the Centre’s approval. With most states getting approval to borrow from the Center in June, the borrowings of these 20 states declined by 71 per cent year-on-year to Rs 37,531 crore in Q1FY23.

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The combined tax revenue of 20 states, however, stood at Rs 4.46 trillion in Q1FY23, up 37% year-on-year compared to a 43% growth in the year-ago quarter.

The Center cut Rs 41,000 crore from the total net borrowing limit of states for FY 2013 to resort to off-balance sheet loans in FY12, which would affect eight states including Uttar Pradesh, Telangana and Kerala (these States also saw a decline in capex in Q1FY23). The decision is part of a tightening of norms to discourage fiscal indiscipline by states, many of whom resort to loans through parastatal bodies to fund government schemes and capex.

The Center had released the advance amount of GST compensation till May 31 to the states to assist them in their capital expenditure. Anticipating a fall in capex, the Center is also offering soft loans of Rs 1 trillion, of which 80% is an unconditional 50-year interest-free loan, to help states maintain the capex pace. Analysts said as states withdraw from this facility, their capital expenditure may start showing improvement from the second quarter of FY23.

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The state capital expenditure has a higher growth multiplier potential as compared to the Union budget/CPSE capital expenditure. While the Centre’s budgeted capital expenditure grew by 57% year-on-year to Rs.1.75 trillion in April-June of FY23, a conscious effort is being made by the government to ensure that the CPSEs/departmental arms (which achieved 1.37 trillion or 21% of their annual target in Q1FY23.

The states reviewed included Maharashtra, Uttar Pradesh, Madhya Pradesh, Karnataka, Gujarat, Odisha, Telangana, Kerala, Rajasthan, West Bengal, Punjab, Bihar, Chhattisgarh, Haryana, Jharkhand, Uttarakhand, Himachal Pradesh, Tripura, Sikkim and Nagaland. Are included.

20 states saw their revenue expenditure increase by 13% in the first quarter of FY13, registering a flat growth in the year.

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