Combined capex of state govts to undershoot FY25 budget estimates: ICRA

Rating agency ICRA on Wednesday said the combined capital spending of a sample of 13 major state governments is projected to increase by 12.6 per cent to Rs 6.5 trillion in FY25. This is significantly lower than the 24 per cent growth indicated in the budget estimates (BE) of the states, which total Rs 7.2 trillion, and the 19.6 per cent growth rate witnessed in FY24.

“If you look at some early trends for this year, especially the first four months of FY25, the combined capital spending of the 13 sample states declined by 13.5 per cent to Rs 1.2 trillion. This was mainly impacted by the general elections and a high base. Additionally, heavy monsoon rainfall in some states in August and September 2024 may have hindered a sharp increase in capital spending during these months. Therefore, we expect capex to be heavily back-ended this year,” said Neetika Shridhar, Assistant Vice President at ICRA, during a webinar.

Aditi Nayar, Chief Economist at ICRA, noted that states like Gujarat, Karnataka, Maharashtra, and Tamil Nadu have adequate fiscal space to meet their budgeted capex in FY25. However, she anticipates some undershooting of state revenues by the other sample states. The 13 states included in ICRA’s analysis are Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Tamil Nadu, Telangana, Uttar Pradesh, and West Bengal.

ICRA also projected the combined fiscal deficit of these 13 states for FY25 at Rs 8.8 trillion, a modest increase compared to the FY25 BE and the provisional actuals (PA) for FY24, which were Rs 8.5 trillion and Rs 7.2 trillion, respectively. Similarly, the rating agency foresees a modest increase in the combined revenue deficit of the states to Rs 2.2 trillion from Rs 1.9 trillion in the FY25 BE.

“If you examine the debt-to-Gross State Domestic Product (GSDP) ratio for these states, the range is quite broad. States like Gujarat, Maharashtra, and Karnataka fare well, with debt-to-GSDP ratios below 20 per cent. Haryana, Madhya Pradesh, Tamil Nadu, Telangana, and Uttar Pradesh have ratios between 20-30 per cent, which is moderate; while Andhra Pradesh, Kerala, Rajasthan, and West Bengal have quite high debt levels at 30-40 per cent. For Punjab, it exceeds 40 per cent,” Shridhar added.

According to ICRA, the total revenues of the sample states are expected to rise by 10 per cent in FY25 compared to the previous year, well below the 18 per cent growth projected in the FY25 BE.

“ICRA forecasts the states’ own tax revenues to grow by a healthy 11.5 per cent in FY25. However, this would still fall short of the optimistic 19.4 per cent expansion anticipated in the BE,” Nayar said.