If the Centre reported an unprecedented 34% annual jump in gross tax revenues in FY22, the state governments likely fared even better. According to data of 20 big states reviewed by FE, their overall tax receipts — own revenue plus divisible-pool receipts from the Centre — jumped 39% on year to Rs 18.8 trillion in April-February FY22, thanks to a reviving economy, improved compliance and higher transfers from the Centre. The combined tax target of all states in FY22 was Rs 22.85 trillion, which required annual growth of 26%.
The surge in tax revenues and a reining in of welfare spending after two years of Covid-related splurge seem to have also enabled state governments to scale up their capital expenditure in FY22.
The 20 states reviewed reported a combined capex of Rs 3.44 trillion in April-February of FY22, up 37% on year, compared with an year-on-year decline of 14% witnessed in the corresponding period of FY21.
Going by the usual bunching of expenditure in March — a third of states’ capex in FY21 was accounted for in the final month of the year — , these states may report impressive capex of Rs 5 trillion in FY22, compared with Rs 3.7 trillion in FY21.
Capex pace of the states reviewed is impressive even in comparison to the level in the same period in FY20, the pre-pandemic year, with a growth of 18% over the two-year period. However, they may still miss the ambitious capex target of Rs 6.09 trillion for the year by a big margin.
The combined capital expenditure of all states need to grow 44% on year to achieve their investment target of Rs 7.23 lakh crore for FY22. Going by the trend, combined capex by all states could be around Rs 6 trillion in FY22, a neat Rs 1 trillion higher than in FY21 (see chart).
Aware that capex by states are augmented towards the end of a financial year, the Centre had front-loaded tax devolution this year to enable states to keep the capex momentum, which is critical for fast-tracking gross capital formation in the economy, given that private investments continue to be weak.
Thanks to buoyancy in tax revenues, the Centre released Rs 8.83 trillion to states for FY22 as their share of the divisible tax pool, 19% more than the revised estimate (RE) for the year. The Centre also front-loaded the entire back-to-back loan component of Rs 1.59 trillion to the states in FY22 to compensate for their GST revenue shortfall from the protected level.
The 20 states reviewed are Uttar Pradesh, Maharashtra, Tamil Nadu, Madhya Pradesh, Karnataka, Gujarat, Rajasthan, Andhra Pradesh, Telangana, Odisha, Kerala, Bihar, West Bengal, Haryana, Chattisgarh, Jharkhand, Punjab, Uttarakhand, Himachal Pradesh and Tripura.
Among these states, capex by Uttar Pradesh was Rs 51,255 crore in April-February of FY22, an increase of 59% on year. Madhya Pradesh’s capex stood at Rs 33,929 crore (up 51%), Karnataka’s at Rs 29,598 crore (4%) and Tamil Nadu’s at Rs 28,034 crore (18%).
With 88% of the tax revenue achieved in April-February by these 20 states, their combined tax revenues may have surpassed the relevant aggregate target in FY22.
Improved revenue flows have allowed these states to curb borrowings; they borrowed 27% less in April-January than in the year-ago period.
The 20 states saw their revenue expenditure rise 14% on year in April-February of FY22, lower than the budgeted rate of 20% growth by all states over actuals of FY21.
Besides states, the Centre also roped in CPSEs for pushing public capex, which is key to an investment-led economic growth revival.
Investment expenditure as measured by gross fixed capital formation (GFCF) grew by just 2% on year in Q3FY221. Continued momentum in capital expenditure by the Centre, CPSEs and states is necessary to push GFCF until private investors take the plunge.
Large central public-sector entities — companies and undertakings — achieved about 80% of their aggregate capital expenditure target for FY22 till February, by investing Rs 4.72 trillion, according to official sources.
According to the Controller General of Accounts, the Centre’s capex stood at Rs 4.85 trillion or 81% of the FY22 revised target, indicating a shortfall in achievement for the full year.