Indian States Forecasted to Boost Capital Expenditure by 29% In FY24

Aditi Nayar, ICRA’s chief economist, anticipates a 29% surge in capital expenditure by 13 key Indian states to Rs 6.2 lakh crore in FY24, despite lower sales tax collections and reduced central grants and borrowing limits. This projection is primarily driven by the increased allocation for the Scheme for Special Assistance to States for Capital Investments by the Government of India, which has risen from Rs 0.8 lakh crore loans in FY202 to Rs 1.3 lakh crore in FY2024 BE.

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These states have been ramping up their capital spending over the past few months, with a notable 50% increase in capex spending during the April-July period compared to the same timeframe last year. This aggressive spending is expected to widen the fiscal deficit to 3.4% of GDP in FY24, a significant jump from the provisional 2.6% of FY23 and above the budgeted 3.1% for FY24.

In addition to this, Nayar predicts that states’ gross borrowing will also rise to Rs 9.5 lakh crore in FY24, up from Rs 7.6 lakh crore in FY23. Despite these potential challenges, Nayar suggests that there could be short-term benefits from returning to the old pension scheme, which would reduce contributory payments. Nonetheless, she warns that the combined leverage is likely to increase to 30% of the GSDP in FY24.

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