In a major boost to the economy, capital expenditure has picked up the pace with state governments accelerating their capex in the first half of current fiscal year. Many state governments had put their capex on hold in the previous financial year, the financial express reported citing a data.
For the 20 major states, the aggregate capital expenditure during the April-September period stood at 1.31 lakh crore which is 16 per cent higher than in the year-ago period. The jump is significant with the fact that states have reported a flat y-o-y growth in capex in the first quarter of the current financial year.
The impetus provided by the state government in capital expenditure is likely to buttress the overall public spending amid the centre's ability to spend deteriorates. Lately, the central government is relying on the PSU borrowing to undo the possible "crowd out" in the Indian economy.
State which witnessed the steepest acceleration in the capex during in H1FY19 included Uttar Pradesh (151 per cent), Rajasthan (62 per cent) and Gujarat (29 per cent). Uttar Pradesh, in contrast, had reported a 33 per cent downfall in FY18 but this year Yogi led government spent whopping Rs 18,318 crore to create new assets in the April-September period.
The Fiscal Responsibility and Budget Management Act (FRBM) directs the states to maintain their fiscal deficit at 3 per cent. The budget estimates unveiled by the states for FY19 indicate that the states are in lines with the FRBM act where consolidated gross fiscal deficit stood at 2.6 per cent of GDP. However, in a recent report published by the Reserve Bank of India, the apex bank warned that "visible fiscal pressures are emerging for several states on the expenditure side".
The reason attributed to the pressure on the state finances included the announcement of farm loan waivers by six states where a whopping Rs 1.26 lakh crore of loans were waived off by the states governments. Moreover, the government's acceptance of the recommendations made by 7th Pay panel which had resulted in the salary/allowance hikes for state governments' staff had put additional pressure on the exchequer.