Why India’s states can again aim big with their finances

livemint.com:

In the past three years, states have been stressed with their finances—first due to the pandemic and then due to worries over the phaseout of the Centre’s compensation for possible losses from a switch to goods and services tax (GST). However, economic revival has helped states’ finances improve since then. Stable GST collections may also ensure—finally—modest growth in revenue collection this year.

Alongside, much touted capital expenditure plans are finally expected to take off, albeit with some help from the Centre. Here’s what states’ finances are looking like, in five charts: 1. Capex, finally The pandemic is over, and the Indian economy has shrugged off its impact.

But with the global slowdown throwing up a new set of challenges, a public sector push is still vital. The Centre has been doing its part, by ramping up capital spending. States, with limited space for fiscal expansion after the pandemic, had been lagging.

This, however, seems to be changing in the current financial year. For the first time in three years, states have together aimed for a similar level of capex as the Centre. The Centre’s budgeted capex amounts to 2.9% of GDP, while states’ is 2.8%, up from 2.1% in 2022-23, showed an analysis by Emkay Global.

However, if the figures hold, states’ combined capex would still fall short of the pre-pandemic trend of regularly exceeding the Centre. Capital spending by state governments is more important as their multiplier effect is said to be higher on the economy.     2.