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Credit Rating Agency ICRA in its latest report has said that states have budgeted 36 per cent higher capital expenditure during this financial year (FY23), which may lead to a sharp rise in their fiscal deficit to Rs 8.4 lakh crore. It noted that registering an increase of 34.1 per cent from the pre-pandemic (FY20) levels, 26 large states, excluding Assam, have spent Rs 5 lakh crore in capital expenditure, or Rs 1.3 lakh crore more than they had spent in FY20.

According to the report, these 26 states are on course to spend Rs 6.8 lakh crore or 35.8 per cent more this fiscal in capital expenditure (capex) over FY22 when it stood at Rs 5 lakh crore. As much as 72 per cent of the incremental Rs 1.8 lakh crore capital push is led by UP, Maharashtra, Bengal, Odisha, Andhra and Haryana. In the previous fiscal, the capex push was led by Bihar, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, Telangana, Tamil Nadu and Uttar Pradesh.

The report further said the combined capex of these 26 states is budgeted to expand by an impressive 35.8 per cent to Rs 6.8 lakh crore in FY23, on top of the 34.1 per cent or Rs 5 lakh crore they spent in FY22. In FY20, they spent Rs 3.7 lakh crore in capex, while FY21 was a washout due to the pandemic. The report also noted that with this aggressive capex push, these states will also see their fiscal deficits widening sharply to Rs 8.4 lakh crore in FY23, from Rs 6.3 lakh crore in FY22, and much higher than Rs 4.8 lakh crore in FY20. However, it said deficit was higher in FY21 at Rs 7.9 lakh crore due the higher pandemic expenses and lower revenue.