Slower pace of state capex raises questions over extent to which public sector can drive economic momentum

Source: The post is based on the article “Slower pace of state capex raises questions over extent to which public sector can drive economic momentum” published in the Indian Express on 4th April 2023.

Syllabus: GS – 3: Indian Economy and issues relating to planning, mobilization, of resources

Relevance: About data on government finances.

News: Recently, the Controller General of Accounts released a report on the data on government finances.

What are the key highlights in the data on government finances?

Fiscal deficit of Centre: The Centre’s fiscal deficit for 2022-23 is supposed to significantly exceed the revised estimates presented in the recent Union budget.

Data on tax collection: The Centre’s gross tax collections have touched Rs 25.4 lakh crore. This is about a 12% increase over the same period last year. This is only marginally lower than the growth assumed in the revised estimates for the full financial year.

Some other data mentioned include a) Direct tax collections have grown at a considerably faster pace than indirect taxes, b) Provisional direct tax collections (net of the refunds) have exceeded the revised estimates by 0.69%, c) Growth in income tax has so far (April-February) outpaced corporate tax collections, d) Overall tax collections have grown at a slower pace than nominal GDP growth.

Data on disinvestment: The data highlighted disinvestment as a matter of concern. This is because, against a target of Rs 60,000 crore, collections at the end of February stood at Rs 38,640 (including the proceeds from the monetisation of national highways).

Data on the expenditure side: Overall central government spending for the year (April-February) grew by around 11%, marginally higher than what was factored in the revised estimates.

Capital expenditure: This received a significantly higher pace of 21% increase so far. However, to achieve the target for the full year the spending will have to grow by 28% in March.

Capital expenditure by state governments: As per a report, 15 states had spent only 54% of their capital expenditure targets for 2022-23 during the first 10 months. So, to meet their targets, states would have to raise their spending by 76% in February and March.

Why Capital expenditure of state governments is essential?

States’ slower pace on capex raises questions about the public sector’s ability to drive economic momentum. Further, their failure to meet this year’s targets will also raise questions over their ability to achieve the scaled-up targets in 2023-24.

States account for a significant share of overall public sector investments. Hence, their spending is critical for driving investment activity and it should be speeded up.