States to drive public capex in H2FY19

Capital spending by 16 large states rises by 21.9% in the first five months of this fiscal year

Capital spending by 16 large states has grown by a robust 21.9 per cent in the first five months of the current financial year, rising to ~963.6 billion from ~790.2 billion over the same period last year, an analysis by Business Standard shows.

This amounts to only 24 per cent of the budgeted capex of these states for 2018-19. By comparison, capital spending (excluding loans) by the Centre has touched 38.1 per cent of its budgeted target for 2018-19 in the first five months.

These trends suggest that bulk of state capex, which accounts for a lion’s share of general government capex, will be carried out in the second half of the current financial year.

While this analysis is based on 16 states, it would be representative of the trends at the aggregate state level as these states account for roughly 70 per cent of the budgeted capex of all states in 2018-19. This analysis is based on data furnished by states to the comptroller and auditor general of India.

At the aggregate level, capital expenditure by these 16 states declined from ~963.6 billion in the first five months of 2016-17 to ~790.2 billion in 2017-18. Disaggregated state-wise data shows that much of the decline in capital spending in 2017-18 can be traced to a single state — Uttar Pradesh. Capital spending by the state declined from ~228 billion in 2016-17 (April-August) to ~49 billion in 2017-18. In the subsequent year, it rose to ~154.5 billion (April-August). While this caused capital spending by states to contract in 2017-18, it subsequently pushed up the numbers in 2018-19.

Excluding Uttar Pradesh, capital spending by the remaining 15 states grew at much slower 9.2 per cent, rising to ~809 billion in FY19 (April to August), up from ~740 billion in FY18. In FY17, it was marginally lower at ~734 billion.

The total capital spending by these states is budgeted at ~4 trillion in 2018-19, roughly 70 per cent of the state capex of ~5.75 trillion. The trends so far suggest that bulk of the capital expenditure by states will be carried out in the second half of the current financial year. And as states together account for a lion’s share of general government capex (state capex is 90 per cent more than the Centre’s), the burden of lifting general government expenditure in the second half of the financial year falls squarely on states.

The analysis is based on 16 states, but it would be representative of the trends as these states account for about 70% of the budgeted capex of all states in 2018-19