13 states spent only 22% of capex budget: Investment worries in second quarter

13 states together spent only 22% of total amount budgeted for capex during the April to July/August period this fiscal

While the central government aggressively ramped up capital expenditure (capex) in August and September this year to compensate for the collapse in private-sector investments, state governments have held back.

An analysis of the expenditure pattern of 13 large states by Kotak Institutional Equities shows that these state together spent only 22 per cent of the total amount budgeted for capex during the April to July/August period in the current financial year.

Actual capex, as a percentage of the budgeted amount, was the highest in Odisha at 37.7 per cent, followed by Haryana at 33 per cent. Karnataka falls at the bottom of the list having spent only 7.8 per cent of the funds allocated for capex. But, data for the state is only available till June. This shortfall does not bode well for an investment recovery, as states spend more on capex than the Centre.

By comparison, the central government has already spent Rs 1.34 lakh crore on capex till September — roughly 55 per cent of the budgeted amount of Rs 2.47 lakh crore. Its total capex (Plan and non-Plan) has grown 5.3 per cent in the first half of the current financial year (April to September), compared to the same period a year ago. But, a monthly break-up shows that the central government’s spending has not followed a secular trend. Capex spending declined in April, June and July; was marginally positive in May; but grew sharply in August and September.

While it is likely that states might begin to loosen their purse strings in subsequent months, the worry is that the uptick in central government capex might not be enough to compensate for the shortfall by the states in the second quarter.

Private-sector investments continue to be sluggish.

Recent news reports, based on Centre for Monitoring Indian Economy data, point out that stalled projects, as a percentage of projects under implementation, rose to 11.9 per cent in the quarter ended September, up from 11.66 per cent in the previous quarter. Of these, the proportion of stalled projects in the private sector was three times that of the government.

Add to that the fact that household investments, which account for a substantial part of the gross fixed capital formation, have been slowing down — a downbeat real estate market stands testimony to that — and the situation doesn’t bode well for the investment numbers in the second quarter due to be released on November 30.