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State governments are targeting a combination of fiscal consolidation and higher capital spending in FY27, with capital outlay across 19 states expected to grow 16.4 per cent year-on-year, faster than the 9.2 per cent rise in revenue expenditure excluding interest, Antique Stock Broking said in a report.
The 19 states analysed by Antique account for around 95 per cent of India's GDP. The report said the budget plans are non-inflationary in nature, as revenue receipts are expected to grow faster than expenditure, while higher capital spending should support capacity creation. Overall, FY27 government budgets (center & state) provide support to the overall capex cycle, the report said. States have budgeted a 13.7 per cent increase in revenue receipts in FY27 over revised estimates for FY26, compared with 7.8 per cent growth in FY26. This is supported by a projected 19.2 per cent rise in grants from the Centre and 14.7 per cent growth in states' own tax revenue. However, the report flagged the revenue assumptions as a key area to watch, saying state own tax revenue growth assumption appears aggressive. The report estimates states' own tax revenue will grow 11.4 per cent in FY27 based on its own estimates, below the 14.7 per cent budgeted growth. On the spending side, capital outlay is budgeted to rise to 2.6 per cent of GDP in FY27 from 2.2 per cent in FY26, while the combined fiscal deficit of the 19 states is expected to narrow to 3 per cent of GDP from 3.2 per cent. The report said the quality of expenditure is also expected to improve, with higher allocations for housing, water supply and sanitation, welfare of SC/ST/OBC communities and urban development. Housing-related capital spending is projected to rise 77 per cent, followed by water supply and sanitation at 29 per cent and urban development at 23 per cent. The report expects the combined Centre and state capital expenditure to rise from Rs 22 lakh crore, or 6.3 per cent of GDP, in FY26 to Rs 26.6 lakh crore, or 6.7 per cent of GDP, in FY27. It also noted that the budget mix could be negative for consumption and thereby help contain inflationary pressures. The report also flagged differing impacts from the 16th Finance Commission's revised tax devolution formula, with states such as Karnataka, Kerala, Gujarat and Haryana expected to see stronger growth in their share of central taxes, while Madhya Pradesh, Uttar Pradesh and West Bengal are likely to see weaker growth. (ANI)
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