States may have to cut FY21 capital spending by Rs 3.4 lakh crore: ICRA

New Delhi: State governments may be forced to cut capital expenditure (capex) by as much as Rs 3.4 lakh crore in FY21 due to shortfalls in goods and service tax (GST) compensation and central tax devolution, despite the options for additional borrowings put forth by the Centre, ratings agency ICRA said.

The additional borrowing options would push state fiscal deficits to 4.25-5.52% of gross state domestic product (GSDP), while loss of revenue other than GST compensation and central tax devolution, coupled with higher revenue expenditures could result in an even sharper contraction in state governments’ capex undertakings.

“We caution that the states may be forced to curtail their aggregate capital spending by as much as Rs 1.0-3.4 trillion in FY21, on account of the anticipated shortfalls in GST compensation and central tax devolution (CTD), despite the options for additional borrowings put forth by the government of India,” said Jayanta Roy, group head, corporate sector rating at ICRA.