States capex growth to moderate to 6.5% in FY25

This is down from a strong 39.3% growth recorded in FY24 revised estimates (RE).

Bengaluru: After three years of strong growth, capital expenditure of 21 states is expected to moderate in the current financial year (FY), growing by a modest 6.5 per cent to Rs 6.5 lakh crore, according to a report by National Stock Exchange.

This is down from a strong 39.3 per cent growth recorded in FY24 revised estimates (RE).

Based on the analysis of FY25 budgets for 21 states, the report said, "Moderation in capex growth for states on an aggregate basis this year is primarily a consequence of reduced budgeted grants/devolution of taxes from the Centre, and states’ efforts to bring down deficit levels, particularly fiscally strained states."

Likewise, revenue expenditure is also budgeted to increase by just 8.9 per cent (a four-year low) to Rs 44.2 lakh crore. However, committed expenditure (interest payments and pensions)  is budgeted at a  steady 10.2 per cent in this fiscal, with its share in overall revenue expenditure rising marginally from 23.7 per cent in FY24RE to 24 per cent in FY25BE (budgeted estimate).

States such as  Punjab, Kerala, Himachal Pradesh, and Tamil Nadu have allocated over 35 per cent of their revenue receipts to committed expenditure in FY25.

The capital-to-revenue expenditure ratio, a measure of expenditure quality, is set at 20.7 per cent for this fiscal, down from a seven year high of 21.2 per cent in FY24RE. While Punjab has the lowest ratio at 6.2%, Gujarat is leading with 36.2% in FY25.

According to the report, Gujarat, Rajasthan, Odisha and Tamil Nadu, with a capex share of 26.6%, 13.3%, 24.7% and 15.6% respectively in total expenditure, have budgeted the highest increase in capital expenditure.

However, large states like Bihar, Madhya Pradesh and Maharashtra, along with smaller states like Assam, Mizoram, and Himachal Pradesh expect capital expenditure to contract in FY25BE.

On the financial health of 21 states which account for 95% of the country's GDP, the report stated that the average GDP for these states is forecast to grow at 11.2% in FY25BE, down from 11.8% in FY24RE.

Total receipts are expected to rise by a four-year low of 10.2% to Rs 43.4 lakh crore this fiscal against 16.7% in FY24RE, with revenue receipts, which form 99% of total receipts, rising by 10.6%.

"This growth is primarily driven by  a 15% rise in states’ own revenues (tax and non-tax) to Rs 25.8 lakh crore, partly offset by lower devolution and grants from the Centre, " the report said.

The overall fiscal deficit of these 21 states is pegged at Rs 10 lakh crore or 3.2% of their GSDP in FY25BE compared to 3.5% in FY24RE, above 3% recommended by the 15th Finance Commission.