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The capital spending by 21 key states is expected to moderate in FY25, growing by a modest 6.5 per cent to Rs 6.5 lakh crore, with an average GDP growth for these states projected at 11.2 per cent, an analysis by the National Stock Exchange of India (NSE) revealed on Friday.  

These 21 states together represent over 95 per cent of India’s GDP (Rs 326 lakh crore in FY25BE). 

Punjab has the lowest capital spending ratio at 6.2 per cent, while Gujarat leads at 36.2 per cent. 

States’ reliance on market loans has dropped in recent years, thanks to higher loans from the Centre. 

"The average GDP growth for these states is projected at 11.2 per cent, down from 11.8 per cent in FY24RE, with significant inter-state variation (0.6 per cent for MP to 22.1 per cent for Mizoram), exceeding India’s budgeted growth of 10.5 per cent," according to the NSE’s ‘State of States’ report. 

Total receipts are expected to rise by a four-year low of 10.2 per cent to Rs 43.4 lakh crore (+16.7 per cent in FY24RE), with revenue receipts (99 per cent of total receipts) rising by 10.6 per cent, the report mentioned. This growth is primarily driven by a strong, albeit sequentially lower, 15 per cent rise in states’ own revenues (tax and non-tax) to Rs 25.8 lakh crore, partly offset by lower devolution and grants from the Centre. 

"Tax buoyancy for these states is expected to remain steady at 1.3x in FY25BE, surpassing the Centre’s 1.0x," the NSE analysis showed. 

On the other hand, committed expenditure (interest payments and pensions) remains high, comprising about 24 per cent of total revenue expenditure and consuming nearly a quarter of revenue receipts. 

Punjab, Kerala, Himachal Pradesh, and Tamil Nadu have allocated over 35 per cent of their revenue receipts to committed expenditure in FY25. 

"The overall fiscal deficit of these 21 states is pegged at Rs 10 lakh crore or 3.2 per cent of their GSDP in FY25BE vs. 3.5 per cent in FY24RE, above the recommended 3.0 per cent by the 15th Finance Commission," the report mentioned. 

It further stated that with states contributing only 30 per cent of total tax revenues but accounting for over 60 per cent of total general government expenditure, improving their financial positions has become increasingly critical. 

"Our analysis highlights the need for a clear fiscal consolidation roadmap for fiscally strained states, a gradual reduction in contingent liabilities to enhance transparency, improved fiscal credibility, and risk-based pricing for State Development Loans (SDLs)," said the NSE analysis. 

These measures are essential for the long-term fiscal health of states, ensuring they are adequately equipped to address exigencies and emerging priorities in an ever-changing landscape, it added.