State government fiscal deficit higher by 45 per cent in first quarter in the wake of upcoming elections: Report

State government fiscal revenue deficit for first half of FY '2023-24 was higher by 45 percent as revenue growth trailed capital expenditure. Yet, Capital expenditure may not meet the budget estimate for the whole year in the wake of upcoming elections, a report by ratings firm Icra said

“ Upcoming Parliamentary elections and a few state elections may dull the pace of capital spending in the coming months of FY’2024” a report by the ratings firm Icra said.

The revenue deficit of a sample of 21 states widened to Rs. 0.7 trillion in the first half of FY’2024 from Rs 0.5 trillion in the first half of FY’2023. Moreover, the fiscal deficit of a sample of 21 states widened to Rs. 3.5 lakh crore from Rs. 2.4 lakh crore during the period.


While the growth of combined revenue receipts and expenditure of the 21 states in the first half of FY '2024 trailed that included in the Budget Estimates (BE) of FY2024, that of their capital outlay and net lending was higher, Icra said.

Early releases under the Scheme for Special Assistance to States for Capital Investments or what is popularly known as capex loans in April-October FY’2024 contributed to the increase in capex as a proportion of the budget estimates to 35% in the first half of FY’2024 from the average of 30% seen in previous years, according to the rating agency.

But state capex needs to expand by 28% in the second half of FY '2024 to meet the budget estimates for the year. This appears challenging in light of the Assembly elections in some states in Q3 FY '2024 and possible imposition of the model code of conduct ahead of the General Elections during Q4 FY’ 2024.

Barring Himachal Pradesh, Karnataka, Kerala, Punjab and West Bengal, the capital expenditure of the remaining 16 states expanded in high double-digits in the first half of FY '2024 relative to the year-ago period.

Capex by several states in the first half of FY’2024 as a share of FY’2024 budget estimates was higher than the trends in previous years, Icra said