As states table their Budgets, here's how the capex numbers stack up

Capex is not the favourite word in the lexicon of ministers despite the generous flow of resources for building assets

Plans for hospitals, roads, logistics parks and such have peppered the budget documents of the half a dozen state governments for FY24 but state finance ministers have hardly connected those numbers with job prospects or the oft-repeated 'rahat' (support) for different constituencies. The numbers also do not always add up. 

Capex is not the favourite word in the lexicon of these ministers despite the generous flow of resources (Rs 2.3 trillion) for building assets that the centre has directed at these states from FY23 and promises to keep up in FY24. And where the state is over-committed as in Uttar Pradesh, the expected run rates are massively scaled up, against actual performance. This also explains why long-term projects like those in renewable energy do not figure as major objectives in the budget speeches. 

The upshot is in all the states none wants to give up on revenue expenditure since those attract headlines. Yet, as they have to manage the fiscal deficit, the states are banking on a higher tax devolution by the centre to finance their capex plans. 

For instance in Haryana, Chief Minister Manohar Lal Khattar, who also holds the finance portfolio has promised the share of capital budget will be 31.5 per cent in FY24. Drilling deeper into the budget numbers shows actual capital expenditure had dipped in FY22 from the budget estimates by 33 per cent. The budget estimate for FY24 simply makes up lost ground for the slower pace. The revenue expenditure is tracking a steep growth rate of 8.5 per cent for FY24. 

Down south, in Karnataka, it is again Chief Minister S R Bommai who holds the finance portfolio. His numbers show the states’ capital expenditure will grow by 30.4 per cent in FY24. Here too, the numbers are less impressive in the detailed statements. Both in the budget highlights and in the budget speech the expected share of capital expenditure is Rs 61,234 crore. But in the detailed budget documents, the number is almost Rs 3,000 crore short at Rs 58,327.84 crore. In any case, it will be a stiff call over the revised estimate for the current financial year at 21 per cent. 

Capex numbers look even more uncertain for Kerala. It is budgeted to decline to Rs 16,728 crore in FY24, a fall of 4.6 per cent year on year. For FY23, the growth rate was just 6.1 per cent year-on-year (YoY) at Rs 17,535 crore. Here too revenue expenditure excluding interest, salary and pension is budgeted to grow 9.6 per cent in FY24. It grew 14.9 per cent in FY23. 

The nub of the problem is that most states in the early cohort have overestimated their revenue growth. “State's own tax revenues are budgeted to grow 15.5 per cent in FY24 over FY23RE… No doubt, economic activities have now returned to near normal; but factoring in the lower nominal GSDP in FY24 compared to FY23 due to softening of inflation, the budgeted growth… appear to be a stretched target”, wrote India Ratings and Research in a  note on the Kerala state budget. 

Telangana has estimated its own tax receipts will grow at 18.5 per cent in FY24. Here too, India Ratings calculates that based on the 12 per cent growth rate in nominal state GDP, the actual tax revenue growth will be much less at 14.3 per cent. 

Based on such an unrealistic assumption, the level of capex for FY24 is slotted at 24.1 per cent to Rs 66,005 crore in FY24, against a flat number for FY23. Such yo-yo movement in capex clearly has negative implications. 

Uttar Pradesh has walked the same route, even more aggressively. The own tax revenues of the state are budgeted to grow at a massive 41.8 per cent in FY24 YoY, which means the tax buoyancy is estimated at almost double the growth rate of nominal GSDP. The budgeted capex for FY24 is a massive Rs 1.56 trillion, a 13.7 per cent higher estimate over the projections for FY23. 

However, the budget numbers show the state has actually spent only Rs 44,770 crore of its estimated Rs 1.38 trillion capex plan for FY23. Between January and March, the state shall have to spend close to Rs 1 trillion on this front to reach the target. 

These ups and downs mean most states find it difficult to frame long-term plans. “Yes, states are expected to come up with plans to avail the large capital expenditures committed by the centre”, says Saloni Sachdeva Michael, energy analyst, India, IEEFA, a global think tank that works on the transition to a sustainable energy economy. 

A report brought out by the institute this week shows there are huge interstate differences in what they have achieved and prospects ahead in their electricity transitions. Some of those relate to not harnessing the investment potential of these transitions. 

The difference is not attributable to the lack of capital. For instance, government data shows a bulk of the capex loan went to states like Uttar Pradesh, Bihar, Madhya Pradesh, West Bengal, Maharashtra, and Rajasthan in FY23. But Uttar Pradesh for instance, ranks way down in the IEEFA report, compared with both Gujarat and Karnataka in investments needed to harness RE. 

“One thing to be tracked is that duplication of resources for the same themes is not happening at the state level. This could also nudge states to utilize the capex for deploying storage solutions (large-grid scale or pumped hydro) to handle RE intermittency and peak demand management”, adds Michael.  

Going by the early numbers, the game plan for the states is to project a high capex ambition but hold revenue expenditure steady. The hope is for the centre to support the capex spend and therefore balance out the budget. Even a fiscally conservative state like Odisha’s budget numbers show its capex has undershot the budget estimate for FY23. But it expects its 33 per cent projected rise in capex will be underwritten generously by the centre.