Capital expenditure by 21 key states is expected to soften in FY25 as it will grow by a modest 6.5% to Rs 6.5 lakh crore, with an average GDP growth for these states projected at 11.2%, an analysis by the National Stock Exchange of India (NSE) showed on Friday".
These 21 states account for over 95 per cent of India's GDP (Rs 326 lakh crore in FY25BE). The lowest capital spending ratio is seen in Punjab at 6.2%. Gujarat occupies the top position with a spending ratio of 36.2%. States in general have been steadily reducing their reliance on market loans over the years as a result of higher loans received from the Centre.
Average GDP growth for these states stands at 11.2 per cent against 11.8 per cent as budgeted in the estimates for FY24RE while showing tremendous inter-state variation ranging from 0.6 percent for MP to 22.1 percent for Mizoram, says NSE 'State of States' report while being higher than India's budgeted growth of 10.5 per cent.
Total receipts would grow by a four-year low of 10.2 per cent to Rs 43.4 lakh crore, with revenue receipts (99 per cent of total receipts) up by 10.6 per cent, the report said. This growth is largely driven by a strong, though sequentially softer, 15% rise in states' own revenues (tax and non-tax) to Rs 25.8 lakh crore, partly balanced by lower devolution and grants from the Centre.
"Tax buoyancy for these states is expected to remain steady at 1.3x in FY25BE, beating the Centre's 1.0x," the NSE analysis showed. Committed expenditure-interest payments and pensions-is relatively high, at about 24 per cent of total revenue expenditure and consuming nearly a quarter of revenue receipts. Punjab, Kerala, Himachal Pradesh and Tamil Nadu have assigned more than 35 per cent of their revenue receipts to committed expenditure in FY25.
The overall fiscal deficit of these 21 states is pegged at Rs 10 lakh crore or 3.2 per cent of their GSDP in FY25BE vs. 3.5 per cent in FY24RE, above the recommended 3.0 per cent by the 15th Finance Commission, it mentioned". It further said that because states were bringing in only 30 percent of total tax revenues but accounted for over 60 percent of total general government expenditure, their improvement on the financial front became increasingly critical.
Our analysis calls for a well-thought-out fiscal consolidation roadmap for fiscally strained states, sequential actions toward liability reduction to bring about more transparency, better fiscal credibility, and risk-based pricing for SDLs, said the NSE analysis.
These would be important for long-term fiscal health of the states, enabling them adequately to respond to exigencies and emerging priorities in an ever-changing landscape, it added.
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