By Ira Dugal
MUMBAI (Reuters) – Twelve large Indian states, which have released their local budgets over the past few weeks and forecast aggressive spending growth in 2023-24, are likely to fall short of their targets posing a risk to economic growth, experts said.
The states – including Maharashtra, home to the country’s financial capital Mumbai, India’s most populated state Uttar Pradesh and Prime Minister Modi’s home state of Gujarat – are estimating expenditure to have risen 21.5% in 2022-23, and plan to increase it further by 11% in 2023-24.
However, actual spending data available for the April 2022 -January 2023 period shows expenditure rose only 11% compared to a year ago.
Economists say this trend was likely to be seen across all states.
GRAPHIC: Spending pattern of 12 large Indian states https://www.reuters.com/graphics/INDIA-ECONOMY/byvrlmwlyve/chart_eikon.jpg
Indian states release their local budgets through the months of February and March, after the federal budget is proposed.
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“While the latest budgets are factoring in an aggressive spending growth in the coming year (2023-24), it must be borne in mind that states have generally failed to achieve their spending targets in recent years, I-SEC PD economists Tadit Kundi, A Prasanna and Abhishek Upadhyay wrote.
Indian states collectively tend to spend more than the federal government and have an important bearing on growth and welfare.
“Expenditure (as a % of GDP) has fallen in FY23, despite buoyant revenues,” wrote Pranjul Bhandari, said India chief economist at HSBC Securities and Capital Markets.
Bhandari attributes slower state spending to an end of a compensation cess, volatility in oil prices and an increase in commitments linked to social schemes sponsored by the center.
“In addition, steps have been taken to dis-incentivize
off-budget borrowings by the states, Bhandari said.
“We believe each of these drivers of lower state spend are likely to spill over into FY24.”
GRAPHIC: Indian states borrowed less than budgeted in 2022-23 https://www.reuters.com/graphics/INDIA-ECONOMY/xmpjkbdlrvr/chart_eikon.jpg
A lower rate of state borrowings, however, could provide some breathing space for the bond market, making for a silver lining, they said.
Economists at HSBC expect state fiscal deficit to be 2.3% of the country’s gross domestic product (GDP) in FY23 and 2.5% of GDP in FY24, both lower than the normal permissible limit of 3% of GDP.
I-SEC PD expects states to borrow a gross amount of around 8.1 trillion Indian rupees and a net amount of 5.3 trillion rupees in the coming year.
In FY23, states borrowed 7.6 trillion rupees, below the budgeted 9.1 trillion.
(Reporting by Ira Dugal; Editing by Nivedita Bhattacharjee)