Centre Reports 12% Increase in States’ Capex from April to February

On Tuesday, the Union finance ministry stated that the Centre’s focus on capital expenditure has motivated the states to boost their own capex. According to data from the Controller General of Accounts (CGA), the ministry reported that states’ capital expenditure from April to February 2023 was 11.9% higher than the previous year. During this period, the states spent approximately 54.7% of their allocated capital expenditure, consistent with previous patterns.

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As of March 23, the 24 major states that have presented their budgets have collectively proposed a 17.7% rise in capital expenditure for FY24 compared to the previous year’s budget estimates, the ministry reported. The ministry attributed this growth in states’ capex to robust revenue generation and assistance provided by the Centre, including the advance release of payments to states.

The Union Finance Ministry has reported a 21.7% increase in the Centre’s capital expenditure from April to February 2023 compared to the same period last year. The ministry expects this growth to continue in FY24 to support economic growth despite challenges such as monetary policy tightening, inflation, and global supply chain disruptions.

The Centre has increased its budgeted capex for FY24 by 33% to 3.3% of the GDP and will continue to provide an interest-free loan to state governments to encourage investment in infrastructure. The ministry hopes that public capex will continue to support gross fixed capital formation and that the private capex cycle will see a revival in FY24.

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Some state governments are critical of the Centre’s alleged efforts to take more fiscal space than it is entitled to and are seeking an extension of the GST compensation mechanism for another five years, which ended on June 30, 2022.

The finance ministry’s report highlighted that several state governments have implemented various measures to enhance their revenue collection, in addition to the robust economic activity. These measures include Assam’s liquidation scheme for paying arrears, Haryana’s one-time scheme for settling old VAT dues, Assam and Kerala’s Green tax, and Uttar Pradesh’s new liquor policy with increased fees. Moreover, states such as Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Madhya Pradesh, Haryana, Kerala, Assam, and UT of Puducherry have considered revising their power tariffs during FY23. Some states, including Tamil Nadu, Telangana, and Kerala, have revised their property taxes to boost their revenues.