New Delhi, Feb 8 (Bureau) Capital expenditure by states will get a push from the capital outlay of Rs 1 trillion in the FY23 Union Budget under the ‘Scheme for Financial Assistance to States for Capital Investment’, India Ratings and Research (Ind-Ra) said on Tuesday. FY23 union budget proposals will have a positive impact on the development of state infrastructure and thus economic development, the rating agency said in a statement. ”Tax devolution combined with the enhanced capital outlay will add to the fiscal space available for states to incur capex in FY23.
However, states have to undertake reforms in certain key areas to be able to channelise borrowings over and above the 3.5 per cent fiscal deficit/GSDP ratio,” it added. States are allowed a fiscal deficit of 4 per cent of GSDP in FY23, in accordance with the recommendations of the 15th Finance Commission. The capital outlay extended by the union government is over and above this limit. State governments play a significant role in bolstering a country’s growth potential or performance through the creation of capital assets. According to the agency, based on the historical track record, states in aggregate have incurred a higher level of capital expenditure than the union government. ”The share of capex by states averaged 2.7 per cent of GDP, as against the union government’s share of 1.7 pc during FY16-FY20. Despite the Covid-19 led lockdown and continued restrictions that halted capital works in the first year of the pandemic, capex by states was higher at 2.6 per cent as per FY21 revised estimate (RE) than 2.2 per cent of GDP (FY21 actual) by the union,” it said.
”Furthermore, states in aggregate incurred a higher proportion of its expenditure on capex (16.7 per cent) than the union’s share of 13.3 per cent, on average, during FY16-FY20. The union provided a capital outlay of Rs 150 billion to states in FY22RE against the budget estimate (BE) of Rs 100 billion (FY21: Rs 118 billion) under the financial assistance scheme. ”This assistance is by way of 50-year interest-free loans and these are specifically tied to be used for PM GatiShakti and other related schemes, rural roads, digitisation and urban sector reforms/development. The union government has increased the allocation under this scheme further to Rs 1 trillion for the year 2022-23,” the agency said.