States on course to spend 29% more in capex this fiscal: ICRA report

States are on course to spend 29 per cent more on capital expenditure in the ongoing fiscal, aided by additional central grants and market borrowings, a report said on Tuesday.

The increased capex spending will see their debt-level in relation to their gross domestic product rising to 30 per cent from 28.9 per cent in FY23, a report by Icra Ratings said.

The combined capital spending of 13 major states will rise 29 per cent this fiscal to Rs 6.2 lakh crore from Rs 4.8 lakh crore in FY23, the report said.

However, despite the year-on-year growth, the capex spending is likely to be Rs 50,000 crore lower than the FY24 Budget estimates of Rs 6.7 lakh crore, Icra said.

The aggregate fiscal deficit of these states for FY24 is expected to go up by Rs 60,000 crore to Rs 8.3 lakh crore as against the budgeted estimate of Rs 7.7 lakh crore, the ratings agency said.

With revenue likely to trail budgeted targets, revenue and fiscal deficits of these states are expected to be Rs 2.1 lakh crore and Rs 8.3 lakh crore, respectively, exceeding the FY24 Budget estimates of Rs 1.4 lakh crore and Rs 7.7 lakh crore, respectively.

This will push up the leverage levels -- debt and guarantees -- of these states to 30 per cent of their gross state domestic product (GSDP) in FY24 from 28.9 per cent in FY23, Aditi Nayar, Chief Economist at the agency, said.

Some of these 13 states have adequate funds to complete 90-100 per cent of their budgeted capex in FY24, while only a few of them have to compress their capex by a sizeable extent, such as Punjab.

Notably, some states' net borrowing ceiling for FY24 will be adjusted by the Centre on account of their incremental off-budget borrowings in FY22.

The agency sees the combined revenue deficit of these 13 states to come in at Rs 2.1 lakh crore, higher than Rs 1.4 lakh crore in the FY24 budget estimates and nearly twice as high as the Rs 1.1 lakh crore in FY23.

Based on the projected capex of Rs 6.2 lakh crore, the agency estimates these states' aggregate fiscal deficit to come in at Rs 8.3 lakh crore in FY24, as against Rs 7.7 trillion in the FY24 budget estimate and Rs 5.9 lakh crore in FY23.

This will push up the combined leverage -- debt and central guarantees -- of these states to 30 per cent of GSDP in FY24 from 28.9 per cent of GSDP in FY23.

According to Nayar, these 13 states have the fiscal space to support robust capex expansion of Rs 6.2 lakh crore, even though they are likely miss sales tax collection targets.

She said the likely fall in sales tax collection is because the full impact of the excise duty cut on fuels by the Centre in May 2022 as well as the reduction in VAT rates by several states in November 2021 will get reflected this fiscal.

Nayar added that the sales tax collection growth might fall to a three-year low of sub-5 per cent in FY24.

She also sees the central grants to states declining sharply to Rs 3.2 lakh crore -- the lowest since FY20 -- in FY24 due to the discontinuation of the GST compensation grants.