ICRA predicts fiscal deficit may rise to Rs 8.4 lakh cr due to high capex

States have budgeted 36 percent higher capital expenditure during this financial year, which may lead to a sharp rise in their fiscal deficit to Rs 8.4 lakh crore.

26 large states, excluding Assam, have spent Rs 5 lakh crore in capital expenditure, or Rs 1.3 lakh crore more than they had spent in FY20, registering an increase of 34.1 percent from the pre-pandemic levels. These 26 states are on course to spend Rs 6.8 lakh crore or 35.8 percent more this fiscal in capital expenditure over FY22 when it stood at Rs 5 lakh crore.

As much as 72 percent of the incremental Rs 1.8 lakh crore capital push is led by UP, Maharashtra, Bengal, Odisha, Andhra Pradesh, and Haryana. In the previous fiscal, the capex push was led by Bihar, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, Telangana, Tamil Nadu, and Uttar Pradesh.

The combined capex of these 26 states is budgeted to expand by an impressive 35.8 percent to Rs 6.8 lakh crore in FY23, on top of the 34.1 percent or Rs 5 lakh crore they spent in FY22. The report also notes that with this aggressive capex push, these states will also see their fiscal deficits widening sharply to Rs 8.4 lakh crore in FY23, from Rs 6.3 lakh crore in FY22, and much higher than Rs 4.8 lakh crore in FY20.

In budget estimates for FY23, these 26 states have pegged their revenue receipts, revenue expenditure and capital expenditure at Rs 35.8 lakh crore, 36.9 lakh crore and Rs 6.8 lakh crore, respectively. Deficit levels in FY22 were smaller than the revised budget estimates as combined revenue receipts and revenue expenditure were equivalent to 97 percent and 93 percent, respectively, compressing their aggregate revenue deficit to 41 percent of the revised estimates.