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States’ capital investment falls 14% in April-May, revenue growth slows – Business News
State capital spending likely fell 14% on the year in the first two months of the current fiscal year, compared with a staggering 90% increase in the same period last year, largely due to election-related spending slowdowns in some states and slower growth in tax revenues.
A review of finances of 24 states by FE showed that their capital expenditure in FY24 rose to Rs 7.16 trillion from Rs 5.68 trillion in the previous year, an increase of 26%.
A review of the finances of 20 states by the FE showed that their investments in April-May FY25 fell to Rs 47,381 crore, compared with Rs 54,929 crore in the same period last year.
The states reviewed are Uttar Pradesh, Madhya Pradesh, Andhra Pradesh, Maharashtra, Tamil Nadu, West Bengal, Bihar, Gujarat, Haryana, Karnataka, Kerala, Odisha, Punjab, Rajasthan, Telangana, Assam, Chattisgarh, Jharkhand, Uttarakhand and Himachal Pradesh. These states account for about 90% of GDP.
Realizing the scarcity of resources in the states, the Center anticipated tax devolution to the states by releasing two installments worth Rs 1,39,750 crore on June 10 for the month instead of one regular installment.
In recent years, public investment led by the Centre, states and CPSEs has played a crucial role in stimulating economic activity, while broader private investment remains subdued.
The 20 states analysed reported 11 per cent growth in their tax revenues in April-May FY25 to reach Rs 4.27 trillion, compared to 19 per cent growth recorded in the year-ago period.
Weaker growth in tax revenues forced states to borrow more in the year. Their borrowings rose 27% on-year to Rs 1.25 trillion in April-May FY25, against an 11% growth seen in the year-ago period.
The states under review reported a 14 per cent year-on-year increase in revenue expenditure in the first two months of FY25 to Rs 5.6 trillion, compared to the 12 per cent growth seen in the previous year.
Furthermore, the anticipated decentralization of taxes and 50-year interest-free loans from the Capex Center could help states increase their investments in the future.
States’ capital expenditure is likely to increase by 26 per cent in FY24, compared with a 12 per cent increase in FY23, supported by the Centre’s interest-free loans and their strong revenue growth.
The state capex includes Rs 1.09 trillion in 50-year loans provided by the Centre in FY24, compared with Rs 0.81 trillion in FY23. For FY25, the Centre has made a provision of Rs 1.3 trillion in the interim budget.
Thanks to greater decentralization of taxes and tax collection, the aggregate fiscal deficit of the states has been controlled below 3% of GDP in the last three years.