States slashed capital outlay by 14% to plug fiscal deficit: Report

States spent 14 per cent less capital between 2015 and 2018 than they had budgeted to meet fiscal deficit targets, said a report. 

“Given the increasingly higher share of states in capital outlay in the country, it is important to note that cutback in capital outlay by states has been more than other components of their Budget. As the actual receipts have been significantly lower (9 per cent on average during the 2015-18 period), the states have had to cut their expenditure in order to meet fiscal deficit targets,” a study by Delhi-based PRS Legislative Research noted.

“During this period, committed expenditure items comprising salaries, pensions, and interest payments have formed 53 per cent of the revenue expenditure. These are expenditure obligations which are difficult to reduce during the year. As revenue expenditure is less compressible, a disproportionate cutback is observed in capital outlay,” the study added.

During the 2015-20 period, four states have, on average, spent more on capital outlay than they budgeted — Odisha (8 per cent), Haryana (6 per cent), Himachal Pradesh (5 per cent) and Karnataka (2 per cent). States which ended up spending significantly less than what they budgeted include Jammu & Kashmir (51 per  cent), Assam (51 per cent) and Goa (50 per cent).

Capital outlay is the component of the government's expenditure which leads to creation of assets, such as roads and bridges, schools, and hospitals. 

During the 2010-20 period, on average, have spent higher on capital outlay as compared to the Centre. For instance, in 2019-20, capital outlay of states and the Centre is estimated to be 2.8 per cent of gross domestic product, or GDP (Rs 5.7 trillion), and 1.8 per cent of GDP (Rs 3.8  trillion), respectively. 

The size of the expenditure budget of states has increased over the years owing to revenue augmentation by the states as well as increased devolution from the Centre.

“The gap between a government's expenditure and receipts is funded through borrowings, which is subject to limits under the FRBM (Fiscal Responsibility & Budget Management) framework. States have managed to keep revenue deficit under control (0.1 per cent during the 2015-18 period) unlike the Centre (2.4 per cent during the same period). Consequently, states have had more funds for capital outlay,” the report said.