At the same time some states including Maharashtra have fiscal space to increase welfare schemes, the ratings firm said.
Icra has forecated a 12.6 percent expansion in the combined capex of sample states in FY’2025, lower than the growth of 24 percent estimated in the Fy’25 budgets of these sample states combined and the 19.6 percent increase seen in the FY’2024 provisional actuals.
“With a 13.5 percent contraction in capital spending during the first four months of FY’2025 and heavy rainfall in some of the states in Q2 FY’2025, capex by the states appears set for a back-ended surge in H2 FY’2025” said Aditi Nayar, chief economist, head-research and outreach, Icra.
ICRA assesses Gujarat, Karnataka, Maharashtra and Tamil Nadu to have adequate fiscal space for meeting their budgeted capex in FY2025 and anticipates some undershooting by the remaining sample states.
Icra’s sample includes Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Tamil Nadu, Telangana, Uttar Pradesh, and West Bengal. These states accounted for 82% of India’s GDP in FY2023.Commenting on concerns raised over the impact on the fiscal over the populists scheme in Maharashtra like Ladki Bahin Yojana of providing cash handouts to women or the decision to discontinue tolls for cars while entering or exiting the financial capital, Nayar said that the state had enough fiscal space to accommodate such scheme and that the state has one of the lowest levels of debt.Icra also foresees a modest slippage in the combined fiscal deficit of the 13 states to Rs. 8.8 lakh crore in FY’2025 from Rs. 8.5 lakh crore estimated in the budgets. The fiscal deficit would be funded by a mix of market borrowings and funds under the scheme for special assistance to states for capital investments.