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For the first quarter of fiscal year FY24 (April-June 2023), Maharashtra and Karnataka saw a steep year-on-year fall in their capital expenditure outlay – the spending by state governments on infrastructure projects – compared to the same period last year, among the ten biggest Indian states (by size of economy).
All the other big states, namely Tamil Nadu, Uttar Pradesh, Gujarat, West Bengal, Rajasthan, Andhra Pradesh, Telangana and Madhya Pradesh, improved their capex performance in Q1, an analysis by DH of the data with the Comptroller and Auditor General of India shows.
As per the data (see chart), the biggest improvement has been by Andhra Pradesh. In April-June 2022, the state government had spent Rs 2,149.2 crore in capex. This was 7 per cent of the state’s full year capex target. That infrastructure investment has jumped up nearly five times to Rs 12,669 crore, nearly 41 per cent of the state’s capex target for the current financial year.
Madhya Pradesh also saw its capex outlay nearly double in Q1FY24, from Rs 7,927.5 crore to Rs 14,358.7 crore.
The Karnataka government’s infrastructure investment outlay fell by 56 per cent in April-June FY24 to Rs 1,964.3 crore (3.4 per cent of budget target) from Rs 4,499.7 crore (10.3 per cent of budget target) in the same period last year.
The reason for this was the recent state election. Since a Model Code of Conduct, enforced by the Election Commission, was in place, spending on new and existing projects and investments were not being approved.
For Maharashtra, the year-on-year fall of 41 per cent is more baffling and can perhaps be put down to the political upheavals in the state. In absence of clear directions from the political leadership, the bureaucracy was unlikely to sanction projects.
The healthy increase in capex of most of the big states, in absolute terms as well as percentage of their budget targets, comes as good news for demand and consumption in the Indian economy.
While private sector capex has picked up, it is nowhere near its full potential and the central and state governments are expected to carry the bulk of infrastructure investment in the current financial year, just like they did in two years of the Covid-19 pandemic and one year of geopolitical turbulence due to the war in Europe.
Most of the capex in the Indian economy is being shouldered by the central government. For FY24, Finance Minister Nirmala Sitharaman has budgeted a record capex target of Rs 10 lakh crore by the centre. This amount is considered adequate enough that the government has advised Indian Railways and National Highways Authority of India to not raise any additional funds from the bond markets.
For April-June FY24, the Centre’s own capex was Rs 2.78 lakh crore, compared with Rs 1.7 lakh crore in the comparable period last year.
Also included in the Rs 10 lakh crore figure, is Rs 1.3 lakh crore that the Centre will give states for their own capex needs. The amount will be disbursed in the same ratio as the tax devolution, and will be in the form of 50-year, interest-free loans.
It should be kept in mind that the states’ own capex targets should exclude the capex support that they receive from the Centre. In fact, part of the long-term loans they receive will be conditional upon how much they spend out of their own infrastructure investment targets.