State Governments To See Sharp Fall In Infra Spending In FY21 Due To Covid Pandemic-SBI Research

According to a report by SBI Research, one of the fallout of the coronavirus outbreak will be a massive cut in Infrastructure spending in this financial year. State after state will be deferring their capital expenditure as money will be diverted to health sector.

According to SBI Research, total capital expenditure of the 19 large states for 2020-21 was budgeted at Rs 8.8 lakh crore up from Rs 8.2 lakh crore in 2019-20. This may undergo a massive revision in the current financial year.
The State governments will look to divert their budgetary resources towards social sectors such as health and sanitation. The tax collections will go down and this will force budget revisions. This can push state fiscal deficit above 3 per cent in the coming year, says the SBI Research report.

According to SBI Research, the combined fiscal deficit as percentage of Gross State Domestic Product (GSDP) for 19 states was at 2.56 per cent for 2019-20, which is lower than the FRBM target of 3 per cent. However, it is significantly more than the budgeted estimate of 2.06 per cent.

The reduced revenue receipts, owing to reduction in share of central taxes, by as much as Rs 1.26 lakh crore has impacted the fiscal deficit. The states’ own tax collection has also grown by only 1.6 per cent in 2019-20. However, sharp capital expenditure cuts have helped the states in maintaining a respectable fiscal deficit number.
For example, Gujarat has to revise its capital expenditure in 2019-20 from Rs 50,000 crore to Rs 45,164 crore which was lower than the capital expenditure in the previous year.

Kerala revised its 2019-20 capital expenditure target from Rs 17,855 crore to Rs 9,126 crore, again lower than capital expenditure in the previous year.

Capital expenditure has two parts – capital outlay and loan disbursements. Capital outlay is the part actually used in creation of assets such as roads, bridges, irrigation facility, educational institutions and hospitals, etc. It is the capital outlay that will see a drastic fall. It would be the onus of the Central government and extend a fiscal lifeline to the state so that NIP targets do get derailed.