Higher capital expenditure could help states deal with projects: Experts

The Centre’s push for states to increase spending on projects and clear dues through higher capital expenditure is likely to benefit industry in getting dues cleared, according to experts. This is because half the spending on infrastructure is done by states. A few others, however, have questioned the requirement for such borrowings since states are unable to meet their basic spending needs.
 

The central allocation of Rs 25,000 crore, in addition to Rs 4.13 trillion given in the Union Budget, would be provided to states for capital expenditure on roads, defence, water supply, urban development and domestically-produced capital equipment. This incremental spending, said an industry professional, could help in boosting economic activity. 
 

Vijay Chhibber, former secretary in the ministry of road transport and highways, however, criticised the Centre’s approach in granting loan to states.
 

He said, “The central government is not paying GST (goods and services tax) dues to them and now saying that they would provide interest free loans. States are bleeding. They do not have enough funds to pay salaries to their employees. Why would they borrow for expenditure?”
 

The central loan would be interest-free 50-year loan to states for capital expenditure. The Rs 12,000 crore, however, would be too small for taking up new projects and can be used only for paying dues or infusing money into ongoing works, they said.
 

“The states were earlier contributing 50 per cent of the total expenditure on infrastructure in the country. But they have currently decided to significantly reduce it,” said Shubham Jain, senior vice-president, corporate ratings, ICRA.
 

Maharashtra, for instance, imposed a 67 per cent cut on planned expenditure in May to mobilise nearly Rs 70,000 crore to tackle unexpected expenditure following the outbreak of coronavirus. The total planned expenditure of the state is around Rs 1.11 trillion. ICRA, in a May report, had said gross tax collections for states are likely to witness significant contraction in FY21 consequent to the disruption caused by Covid-19.
 

With states staring at a huge revenue deficit, the headroom available to them for incurring capital expenditure has reduced substantially. In many cases, the revenue deficit itself could make states breach the fiscal deficit norms leaving no space for capex.
 

The overall capex budget of states for FY21 is around Rs 5.7 trillion which is likely to witness a steep cut. The focus areas for states have been major and medium irrigation, roads, metros and drinking water supply projects. 

(With inputs from Amritha Pillay)