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Rating agency ICRA in its latest report has estimated that the 13 state governments have the fiscal space to incur capital spending of as much as Rs 7.4 trillion in FY2023, rivalling the size of the government’s capex budgeted for this fiscal. The 13 states, having nearly 85 per cent share in India's GDP in 2020-21, had made a capital expenditure of Rs 4.1 lakh crore last fiscal. While the availability of funds doesn't appear to be a constraint in FY2023, the actual outgo incurred by these state governments in the early months of this fiscal has been rather muted. Their Budget estimate for capex spending this fiscal is Rs 5.8 lakh crore.

ICRA estimates the combined revenue deficit of these 13 states will be at Rs 2.1 lakh crore, higher than the Rs 1.8 lakh crore budgeted. While tax devolution as well as the goods and services tax (GST) compensation grants are likely to exceed the amount budgeted by the states in the sample in FY2023, this will not fully offset the estimated shortfall in other revenues and the projected higher-than-budgeted revenue expenditure in this fiscal.

The report assess that Andhra Pradesh, Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Tamil Nadu, Uttar Pradesh and West Bengal will have adequate resources to fully fund or exceed their budgeted capex for FY2023. However, it said the fiscal space available for Haryana, Rajasthan, Kerala, Punjab, and Telangana appears to trail the capex budgeted for the current fiscal by a varying extent, suggesting that additional revenue mobilisation and/or expenditure efficiency measures may need to be found to boost capex.