Even as the states fight the twin challenges of coronavirus outbreak - a medical and an economic emergency - they will massively cut their spending on infrastructure in the ongoing financial year.
Punjab finance minister Manpreet Singh Badal recently told Business Today that the state will defer capital expenditure worth Rs 10,000 crore in the current financial year to the next because the state sees a Rs 20,000-crore revenue loss in 2020-21. Punjab, according to Badal, is staring at a revenue loss of Rs 20,000 crore in the current financial year.
Other states will have to follow suit. Sharad Pawar, whose party NCP is one of the partners in the coalition government of Maharashtra, in a letter to Prime Minister Narendra Modi, said that the state expects to see a revenue shortfall of Rs 140,000 crore in the current financial year and seek a generous financial package from the Centre. The Chhattisgarh government has already sought a Rs 30,000-crore financial assistance from the Centre for the next three months.
One way the state governments might try to cope with the situation is cut down sharply on capital expenditure - the money spent on creating assets like roads, infrastructure, etc - as lot of resources will go into social sectors like health and sanitation.
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 see a massive revision in the current financial year.
"The recent state budgets numbers presented for states will undergo revisions. The governments will have to step up expenditure, especially in the social sectors such as health and sanitation, even as tax collections slow down. This can push state fiscal deficit above 3 per cent in the coming year," says the SBI Research report.
The states had to already cut their capital expenditure in 2019-20 to keep their fiscal deficit numbers in check.
According to SBI Research, the combined fiscal deficit as percentage of 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.Vaccine could be ready in 12 months, says Bill Gates; pledges 'total attention' to coronavirus