Despite the Central government’s push towards capital expenditure (capex), the total public sector capex is likely to decline as a percentage of GDP in 2022-23 (FY23), as state governments and public sector enterprises are unlikely to meet their capex targets, an analysis by equity research firm Emkay Research indicates.

“The Centre is likely to spend about 2.6% of GDP on capex, far higher than pre-pandemic levels of 1.5-1.9%. State capex is likely to remain stable and is unlikely to achieve the budget estimate of ₹6.9 lakh crore, which would have accounted for 2.6% of GDP. Instead, even with the expected ramp-up in capex in H2 FY23, states will likely only hit ₹5.9 lakh crore in capex, which would be 2.1% of GDP, a similar level to that seen in the past few years. Additionally, capex spending by CPSEs is likely to decline for the third consecutive year, implying that total public sector capex is likely to come in at 6.5% of GDP in FY23, declining from 6.9% in the two previous years, and 6.7% on average between FY15-FY20”, Emkay Research notes.

According to Emkay analysts, the Central government’s push on capex continues, with ₹4.1 lakh crore having been spent so far, reflecting a 61% increase YoY, and having met 55% of the current year’s BE of ₹7.5 lakh crore, as against 46% in the same period last year. Roads and highways (up 98%, 78% of BE) and railways (up 69%, 75% of BE) led in terms of capex, while defense spending so far is nearly identical as that for the year-ago period (45% of BE).

On the other hand, states have chosen to focus on revenue expenditure (Revex) rather than capital expenditure, Emkay Research notes. “Revex for 26 states surveyed is up by 13% YoY (₹15 lakh crore, 42% of BE), and this has led to total expenditure increasing by 11% YoY (₹16.7 lakh crore, 40% of BE). Capex, on the other hand, is lagging, having declined by 3% YoY so far (₹2 lakh crore, 30% of BE). This is far lower than the projected growth of over 36% YoY from FY22RE and reflects the need for states to accelerate their capex spending”, the equity research firm points out.

While states like Gujarat, MP, Kerala, and HP are leading in terms of meeting their respective capex BE for FY23, some of the northeastern states, along with UP, are lagging.

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