India's state governments have pitched in with the same fervour shown by the Centre to prioritise capital expenditure (capex) as a means to sustain post-pandemic economic revival, an analysis of the annual Budgets for 2022-23 of 26 states by rating agency ICRA indicates. The states' budget estimates of FY23 peg capex growth at 35.8% relative to FY22 provisional actuals (PA), the agency says. The Union Budget had provided a 35.4% increase from ₹5.54 lakh crore in 2021-22 to ₹7.5 lakh crore in 2022-23 in capex allocations early this year.

"After recording a 27.6% growth in capital spending in FY22 PA on a low base, the budgeted capex for FY23 (by all states) is a steep 35.8% higher on a YoY basis. Nearly 72% of the ₹1.8 lakh crore incremental capital outlay is led by UP, Maharashtra, West Bengal, Odisha, Andhra Pradesh and Haryana," ICRA analysis says.

According to ICRA, the budget estimates (BE) for FY23 of 26 states (excluding Assam and Goa) pegged their revenue receipts, revenue expenditure and capital expenditure at ₹35.8 lakh crore, ₹36.9 lakh crore and ₹6.8 lakh crore, respectively, 19.8%, 19.7% and 35.8% higher than the FY22 PA levels. Reflecting the high growth in capital expenditure, the sample's fiscal deficit is budgeted to widen to ₹8.4 lakh crore in FY23 BE from ₹6.3 lakh crore in the FY22 PA, the agency adds.

"The revenues of the sample in FY2023 BE are Rs. 5.9 lakh crore or nearly 20% higher than the FY2022 PA. The aggregate revenue expenditure budgeted by the 26 states for FY2023 is a substantial 19.7% or Rs. 6.1 lakh crore higher than FY2022 PA. Notably, the incremental revenue expenditure of Rs. 6.1 lakh crore of the 26 states in FY2023 BE is sharply higher than the annual incremental spending in the years immediately preceding the pandemic (Rs. 1.6-2.7 lakh crore) and even in FY2022 PA (Rs. 3.4 lakh crore)," ICRA's analysis says.

With a healthy step up in the capital expenditure in FY23 BE, the aggregate fiscal deficit of the 26 states is expected to increase to ₹8.4 lakh crore in FY23 BE from ₹6.3 lakh crore in FY22 PA, as well as the level of ₹7.9 lakh crore recorded in FY22, it says.

The agency's analysis of the cumulative capital spending of the states in FY22 PA indicated that the capital spending by the 26 state governments expanded by 27.6% to ₹5 lakh crore in FY22 PA on a YoY basis and exceeded the pre-pandemic level by a healthy 34.1%. It also noted that the incremental capital spending of eight states, namely, Bihar, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, Telangana, TN and UP aggregated to ₹91,400 crore in FY22 PA and accounted for nearly 72% of the total increase of ₹1.3 lakh crore in capital spending of 26 state governments.

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