Anomalies in states' capital budgets

Spending and classification can be a variable exercise

- SUBHOMOY BHATTACHARJEE New Delhi, 17 March

States have begun to put serious money in their capital budgets but how much of that money is new and where does the spending go? India Ratings & Research data shows for FY24 nine major state governments plan to spend close to 26 per cent more than what they spent in FY23. As absolute numbers, these are big sums and bear examination.

An analysis of the state Budgets by Business Standard shows a large part of those capex numbers in key states are meant for construction of buildings. These are mostly for hospitals, schools or training institutions, particularly in eastern states. Hardly any state has made provisions that, say, mimic production-linked incentives schemes or subsidies for renewable power to attract private sector investments.

For the sake of comparison, we chose two states in eastern India, Odisha and West Bengal.

By the estimates of most public finance economists and by those of successive Finance Commissions and the reports of the Comptroller and Auditor General (CAG), Odisha is one of the most fiscally responsible states. West Bengal lies at the other extreme.

Most of the other major states, including Gujarat, Uttar Pradesh and Haryana, hew close to either extreme.

This comparison could become difficult, however. Rajasthan has proposed to shift its accounts from treasury based mode, where the rules are set by the CAG, to a pay and accounts mode. In the latter, the rules will be set by the state legislature. The incentive could rise as the capex purse expands.

To understand how a state spends its money, budget speeches or the Budget at a Glance sections are of little use.