{"id":250177,"date":"2023-06-30T20:15:30","date_gmt":"2023-06-30T14:45:30","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=250177"},"modified":"2023-08-31T14:41:12","modified_gmt":"2023-08-31T09:11:12","slug":"why-states-are-falling-short-on-capital-spending","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/why-states-are-falling-short-on-capital-spending\/","title":{"rendered":"Why states are falling short on capital spending"},"content":{"rendered":"\n

Source<\/strong>– The post is based on the article \u201cWhy states are falling short on capital spending\u201d <\/strong>published in the \u201cThe Hindu\u201d <\/strong>on 30th June 2023<\/strong>.<\/p>\n

Syllabus:<\/strong> GS3- Government budgeting<\/p>\n

Relevance-<\/strong> Issues related to government finances<\/p>\n

News-<\/strong> Today, Indian states are at the forefront when it comes to capital expenditure. Aware of this, the Centre has been incentivizing them in a big way. But the outcome is far from optimal.<\/p>\n

What\u2019s the importance of capex? <\/strong><\/h2>\n

Capex creates assets. These improve the efficiency of the economy<\/strong>. A capital expenditure on port will speed up transportation of goods and people. It will reduce logistics costs.<\/strong><\/p>\n

They contribute to future economic growth<\/strong>. A factory set up today will create jobs and its output will add to the gross domestic product i<\/strong>n future.<\/p>\n

Revenue expenditure<\/strong> does not create any asset and contributes to present growth.<\/p>\n

Who should be spending on capex? <\/strong><\/h2>\n

Ideally the bulk of the capex<\/strong> should be done by the private sector. Government should play a supportive role<\/strong>. However, the private sector in India is reluctant to invest in capex. <\/strong><\/p>\n

As a result, the government is investing heavily for capex with the hope that it will trigger private investment. <\/strong><\/p>\n

Here the states have come to play a larger role as their combined capex spending<\/strong> is more than that of the Centre. In FY22 states spent \u20b910.5 trillion on capex compared to the Centre\u2019s \u20b98.4 trillion.<\/p>\n

How are states being encouraged to spend more? <\/strong><\/h2>\n

The Centre is offering states a 50-year interest-free loan for capex<\/strong>. In FY23 it approved \u20b995,147 crore and for FY24, \u20b91.3 trillion has been allocated under the scheme.<\/p>\n

The Centre has also been releasing tranches of tax devolution<\/strong> early to help states front-load capex <\/strong>rather than wait till the end of the fiscal.<\/p>\n

How have states fared on capex? <\/strong><\/h2>\n

According to a study by Bank of Baroda, 25 states have cumulatively achieved 76% of their capex target in FY23<\/strong>. They had budgeted \u20b97.49 trillion and spent \u20b95.71 trillion.<\/p>\n

Karnataka, Sikkim, Arunachal Pradesh and Bihar exceeded their target. Jharkhand, Madhya Pradesh, Himachal Pradesh, Chhattisgarh, Tamil Nadu, Gujarat and Odisha spent over 80% of the budgeted amount. <\/strong><\/p>\n

Andhra Pradesh was the worst performer <\/strong>spending just 23% of allocated funds.<\/p>\n

Why are states falling short despite support? <\/strong><\/h2>\n

Firstly, states are legally mandated under the Fiscal Responsibility and Budget Management Act <\/strong>to keep their fiscal deficit <\/strong>under control.<\/p>\n

States are unable to reduce their revenue expenditure<\/strong> on salaries, pension, subsidies. They are cutting down on capex to meet the deficit norms.<\/strong><\/p>\n

States are also constrained by a lack of projects or skills to implement them<\/strong>. There are state-level political disruptions<\/strong> such as government instability or elections which come in the way of decision-making pertaining to capex.<\/p>\n","protected":false},"excerpt":{"rendered":"

Source– The post is based on the article \u201cWhy states are falling short on capital spending\u201d published in the \u201cThe Hindu\u201d on 30th June 2023. Syllabus: GS3- Government budgeting Relevance- Issues related to government finances News- Today, Indian states are at the forefront when it comes to capital expenditure. Aware of this, the Centre has… Continue reading Why states are falling short on capital spending<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,8184,10498],"class_list":["post-250177","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-indian-economy","tag-the-hindu","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/250177","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=250177"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/250177\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=250177"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=250177"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=250177"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}