States slow down with spending; register lowest growth in 13 years

While the private sector has been spending less off lately, some of the top states in the country have also slowed down their spending because of their inability to increase the tax base.

In fiscal 2017-18, 17 major Indian states have budgeted for a 10.8% rise in spending, as compared with 19% last fiscal. This is the slowest pace of increase in at least 13 years.

As a result of this low spending growth rate, general government spending is also expected to grow by merely 7.8% this year, less than half of last year’s 17% rise from last year, says a study by Nikhil Gupta, economist with Motilal Oswal.

However, there is some good news as well. This 7.8% pace of increase in revenue spending is lower than capital spending, which creates assets and generates jobs.

Also, capital expenditure is projected to grow by 14%, which is 2% more than the long-term average growth of around 12%.

"Indian states are providing support to investment growth. The subdued investment is possible only because of the capital spending by the states. After the 14th finance commission award, the general apprehension was that states would spend on current consumption. On the contrary, the states have spent more on capital expenditure. On average, states spent 60 per cent of their capex on building roads and bridges, power, and irrigation," Devendra K Pant, chief economist at India Ratings, told ET.

This year as well, states have allocated maximum shares towards irrigation and flood control (23%), transport (19%) and energy (8%).

Talking of the overall revenue spending, education tops the list with 18% share, followed by 12% for interest payments and 11% for pension.

However, states have been unable to increase the share of own tax revenue, which is one of the four key areas from where states raise resources. The other three being non-tax receipts, share of central taxes and central grants.

Even though tax collections are budgeted to grow at over 14% which is the highest in five years, as a percentage of GDP, it continues to be a modest 6.5%.

Owing to staggering growth in states' own receipts, they are forced to rely more and more on the Centre for their funding needs.

(Image source Hindustan Times)