Government spends only a third of targeted capex in 1HFY22 - Motilal Oswal
Government spends only a third of targeted capex in 1HFY22
Aggregate fiscal deficit at 8% of GDP in 1HFY22
* Based on the monthly accounts of 18 states (together accounting for ~87% of all states), the total receipts of all states surged 21.4% YoY in 2QFY22, leading to growth of 24.8% YoY in 1HFY22. On the contrary, the total spending by states grew relatively slower by 16.8% YoY last quarter, implying growth of 16.2% YoY in 1HFY22. Consequently, on an aggregate level, states’ fiscal deficit stood at 40.2% of BE in 1HFY22 – this was lower than 55.6% of BE (44.4% of provisional estimates) in 1HFY21, but higher than the average of 36.5% of BEs (44% of actuals) in the first halves of FY18 to FY20.
* States’ total taxes grew 22.8% YoY in 2QFY22, supported by a favorable base (down 10.4% YoY in 2QFY21). States’ own non-tax revenue receipts grew at a strong pace, but ‘grants from the center’ grew slowly by 7.2% YoY in 2QFY22, despite a highly favorable base (of -22.1% YoY in 1QFY22). Within states’ own taxes, ‘stamp duty and registration charges’ grew by more than half in 2QFY22, with 3x/2x the collections in Telangana (TS) / Haryana (HR).
* Capital spending by states grew 58.5% YoY in 2QFY22 on a 32% YoY contraction in 2QFY21. Revenue spending by states grew 12.2% YoY in 2QFY22 v/s growth of 10% YoY in 1QFY22 and decline of 7.6% YoY in 2QFY21.
* A look at individual states suggests Odisha (OD) was the only state to post a fiscal surplus of 27% of FY22BE in 1HFY22, with Jharkhand (JH) recording a very small deficit. On the other extreme, Kerala (KL) posted a fiscal deficit of 123.1% of FY22BE in 1HFY22, followed by Andhra Pradesh (AP) / Bihar (BH) at 107.8%/106% of BE. Among the large states – Karnataka (KA), Maharashtra (MH), and Tamil Nadu (TN) – fiscal deficit stood at just 20–23% of FY22BE in 1HFY22.
* Combining the finances of states for 2QFY22 with those of the central government suggests that the total receipts by the general government grew 29.4% YoY in 2QFY22 on the back of a 19% YoY contraction in 2QFY21. The combined spending (adjusted for ‘grants from the center’ to states) grew 20% YoY in 2QFY22, after declining 11% YoY in 2QFY21. While capex grew 55%/52% YoY in 2Q/1HFY22 on a low base, it was just one-third of FY22BE in 1HFY22.
* Adjusted for the base effect, the total spending by the general government in 1HFY22 came in just 11% YoY higher than in 1HFY20, implying a CAGR of just 5%. This was despite total receipts having grown at a CAGR of 8% over the corresponding period. The capex CAGR was better at 8%.
* Due to relatively weaker spending growth, the fiscal deficit of the general government was just 36.8% of 1HFY22 BEs visà-vis an all-time high of 89% in 1HFY21 and an average of 68% in the preceding three years. Assuming 16% YoY growth in nominal GDP in 2FY22, the fiscal deficit stands at 8% of GDP in 1HFY22, lower than 15% of GDP in 1HFY21 and 8.4% of GDP in the preceding three years.
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