Expenditure quality in most states worsens, Karnataka an outlier

 New Delhi: Expenditure quality in most states worsened in the first quarter (April-June) of the current financial year as the proportion of capital outlay in total expenditure declined. However, in Karnataka and some other states, there were improvements, data analysed by India Ratings and Research showed on Tuesday.

For Karnataka, the proportion of the state’s capital outlay in total expenditure rose to 6.8% in Q1FY25 from 5.1% recorded in the same period last year, an improvement of 170 basis points. However, the average ratio of 24 major states declined to an eight-quarter low of 8.4% in Q1FY25, 2.7 percentage points lower year-on-year.

The states where the decline in capital outlay in total expenditure ratio was sharper included Andhra Pradesh, Telangana, Uttarakhand, Rajasthan, West Bengal, Haryana and Madhya Pradesh.

Besides Karnataka, the other states that registered year-on-year improvement in expenditure quality included Assam, Punjab, Himachal Pradesh and Maharashtra.

The quality of expenditure is gauged by the proportion of capital outlay in total expenditure. A higher ratio implies a higher proportion of funds being expended towards productive infrastructure assets which are favourable for the economy.

Revenue receipts of states increased by a modest 3% year-on-year to Rs 8 lakh crore in the April-June quarter due to a sharp contraction of 63.3% in grants from the central government. Tax devolution grew robust at 29.4% in 1QFY25. The notable trend has been the sustained buoyancy in own revenues, India Ratings said.

Fiscal deficit of states widened to 1.4% of GDP in the first quarter of the current financial year, which is 30 basis points higher when compared with the corresponding period of the last year.