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State budgets show strong expenditure growth, thrust on capex in FY22

In this report, we analyse budgets of 17 major states which account for ~87% of the country’s GDP. Our analysis shows that major states have budgeted ~15% y/y growth in total expenditure in FY22, much higher than the centre’s muted 1% growth. Including states, total government expenditure growth in FY22 is likely to be 8% y/y. States have budgeted 29% y/y growth in capex and 11% y/y growth in revex in FY22. We estimate government (states + centre) total expenditure, capex and revenue expenditure in FY22 at Rs 78trn, Rs 15trn and Rs 63trn respectively. Also, major states have budgeted 35% y/y increase in SGST revenue. Based on this, we estimate that monthly GST collection in FY22 will have to average ~Rs 1.2trn to meet annual GST target. Major states’ budgeted fiscal deficit for FY22 is 3.4% of GSDP, taking budgeted combined fiscal deficit (states + centre) at 10.2% in FY22.

* Aggregate GSDP of major states expected to grow ~11% y/y in FY22: In the Union Budget FY22, the FM assumed a nominal GDP growth rate of 14.4% in FY22. However, states have been less optimistic than the centre. Aggregate nominal GSDP of the states in our sample is budgeted to grow 11% y/y in FY22, although we believe this number could surprise on the upside.

* Total expenditure of major states expected to grow 14.7% in FY22: On an average, major states have budgeted 14.7% y/y increase in total expenditure in FY22. Extrapolating this number to all states, we estimate that all states’ total expenditure is likely to stand at ~Rs 43trn in FY22. Along with centre’s budgeted total expenditure of ~Rs 35trn, we estimate that total government expenditure in FY22 is likely to be ~Rs 78trn, up ~Rs 5.8trn or 8.1% compared to FY21RE.

* States thrust on investments; capex slated to grow ~29% in FY22: Major states have budgeted capex of Rs 7.84trn in FY22, a strong increase of 29% from FY21RE. Assuming a similar rate of growth for all states, we estimate that states’ total capex is likely to be ~Rs 9.1trn in FY22, up from ~Rs 7trn in FY21. Adding centre’s budgeted capex to this number, we estimate that total government (centre + states) capex in FY22 is likely to come in at ~Rs 14.6trn, up from Rs 11.4trn in FY21RE.

* Growth in revenue expenditure in FY22 at 11%: Revenue expenditure growth for major states in FY22 is seen at 11.1%. Extrapolating this growth rate to states not covered in the sample, we estimate that total revenue expenditure in FY22 is likely to be ~Rs 33.4trn up from Rs 30trn in FY21RE. Including centre’s revenue expenditure, we estimate that total government revenue expenditure in FY22 is likely to be ~Rs 63trn up from Rs 60trn in FY21.

* Monthly average GST collection target for FY22 could be ~Rs 1.2trn: For major states in our sample, average budgeted growth in SGST is seen at 35% for FY22. Based on state budget data, we estimate that aggregate SGST target for FY22 to be ~Rs 6.8trn and states’ share in CGST to be ~Rs 2.2trn. Including centre’s CGST target of Rs 5.3trn in FY22, we estimate that total GST target for the year could be Rs 14.4trn implying average monthly collection target of ~Rs 1.2trn.

* Fiscal deficit for major states seen at 3.43% of GSDP in FY22; revenue deficit at 0.5%: For major states in our sample, fiscal deficit as a percentage of GSDP came in at 4.3% in FY21. Assuming broadly similar fiscal deficit numbers for states not in the sample, we estimate that combined state and centre fiscal deficit in FY21 is likely to be at 13.8%. In FY22, major states’ collective fiscal deficit is budgeted to come down to 3.4% of GSDP. Along with the centre’s budgeted 6.8% fiscal deficit, we estimate combined fiscal deficit for FY22 at ~10.2% of GDP.

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