50% Off! Beat the market in 2025 with InvestingProCLAIM SALE

Indian states likely to fall short of spending targets, posing growth risk - economists 

Published 03/31/2023, 12:48 AM
Updated 03/31/2023, 12:50 AM
© Reuters. FILE PHOTO: A woman wearing a protective face mask buys fruit in a market, amidst the spread of the coronavirus disease (COVID-19) in Mumbai, India, August 20, 2020. REUTERS/Hemanshi Kamani

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.

"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.

© Reuters. FILE PHOTO: A woman wearing a protective face mask buys fruit in a market, amidst the spread of the coronavirus disease (COVID-19) in Mumbai, India, August 20, 2020. REUTERS/Hemanshi Kamani

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.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.