Centre’s capex on track, but transfers to states fall behind

In the Union Budget for 2022-23, the Centre had announced a record ₹7.5 trillion as capital expenditure to support the economy emerging from the pandemic-induced slowdown. With a quarter of the full year elapsing, the Centre has spent 23.4% of its capex budget by June, the data showed. Once again, infrastructure-heavy ministries–roads and railways–were the major forces that kept capex on track. Overall, capex rose 57% from the year-ago period.

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However, while the Centre delivered during the quarter, its capex transfers to states amounted to a meagre 2.2% of the full-year Budget estimates, leading to worries over the full utilization of the ₹1-trillion interest-free capital expenditure loan scheme to states that alone is pegged to account for 14% of the total capex outlay.

“The timelines of the take-off by the states of the interest-free capex loan scheme, which so far appears to be muted, will crucially determine the pace of government’s capital spending,” said ICRA in a note.

After disbursing ₹11,830 crore in 2020-21 and ₹14,186 crore in 2021-22 to states, the Centre had raised the amount sharply in its FY23 budget as a way to help them cover any shortfall in revenues due to the end of goods and services tax compensation and carry on with capital expenditure. To avail the scheme, states will now have the additional requirement to submit details about their capex plans such as capital outlay and economic justification, among others.

Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership, said the rules for implementing the loan scheme appear to have been finalized only recently, and this could have led to lower utilization levels till June. “The April-June capex has been robust and transfers to states could also pick up in coming quarters now that these rules are in place,” he said.

State budgets paint a mixed picture of their capex plans, with states such as Andhra Pradesh and Haryana aiming for 66% and 51% year-on-year (y-o-y) increase in their capital outlay, respectively, while Bihar and Himachal Pradesh budgeted their capital outlay lower by 23% and 20%, respectively, this fiscal, shows data compiled by PRS Legislative Research.

In the central government, ministry-wise trends were also mixed. While road and railway ministries saw their capex rise 72% and 80% y-o-y, respectively, housing and urban affairs and health ministries’ capital spending fell 50% y-o-y.

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