EBM News
EBM News

Despite significant pressure on revenues

NEW DELHI:  Despite significant pressure on revenues, India’s state governments have largely managed to stick to their spending plans, recent data from the Comptroller and Auditor General (CAG) shows. While total expenditure in terms of percentage of budget estimates (BE) during April to July this year has largely remained unchanged for the 17 states analysed, many have recorded sharp declines in tax and non-tax revenues.

This could affect state governments’ spending during the second half of the fiscal year. “While spending has been maintained, dwindling tax and non-tax revenues suggest that unless revenue growth picks up, states are likely to either slow the pace of spending in H2FY20 or borrow more from the market,” said Garima Kapoor and Jatan Gogri, analysts with Elara Capital.

The analysis of 17 states’ revenues during the April-July period shows that tax revenue so far this fiscal has either fallen or slowed in all but Chhattisgarh, Himachal Pradesh and West Bengal. Overall tax revenue in the period have fallen by 2.4 per cent year-on-year compared to 10.86 per cent growth last year, with Andhra Pradesh witnessing the sharpest fall at 42.7 per cent, while Karnataka and Punjab have recorded decline of 12.3 per cent and 12.5 per cent respectively.

However, a perusal of the overall expenditure of the states analysed during the period shows they have maintained previous levels so far. Total expenditure in April-July stood at 23.07 per cent of BE against 24.57 per cent last year and 24.55 per cent in FY18. “This has been possible due to steady flow of assured compensation from the Centre through compensation cess despite moderation in GST revenue,” the Elara report observed, noting that total Grants-in Aid from the Centre (which includes GST compensation cess) stood at 23 per cent of BE against 23.34 per cent of BE in FY19.