Indian States Aim for Moderate Consolidation in FY25 with Focus on Capex Rise

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We analyze the budgets of 14 major Indian states for FY25. Here are the key takeaways:

Summary of State Finances in India for FY25 (Financial Year 2024-25)

  • Economic Growth: The analyzed states project a nominal Gross State Domestic Product (GSDP) growth of 10.9% for FY25, which is similar to the national target of 10.5%.
  • Revenue: Revenue receipts are expected to grow moderately at 9.7% compared to the previous year’s revised estimate (FY24RE). This translates to a tax buoyancy slightly below 1, indicating tax revenue growth might not quite keep pace with inflation.
  • Expenditure: State expenditures are budgeted to rise by a slower 7.9% YoY, leading to a lower expenditure-to-GSDP ratio in FY25. There’s also a positive shift in spending priorities, with capital expenditure (Capex) as a proportion of total expenditure rising. This suggests increased investment in infrastructure and development projects.
  • Fiscal Deficit: The combined fiscal deficit of these states is expected to decrease to 3.2% of their GSDP in FY25, compared to 3.4% in FY24RE. This improvement is due to faster revenue growth compared to expenditure.
  • Borrowing: Given the lower fiscal deficit, the total gross borrowing by all states is estimated at ₹11 trillion for FY25. However, considering loan repayments of ₹3.2 trillion, the net borrowing requirement is projected to be around ₹7.8 trillion.

Overall, the analysis suggests moderate fiscal consolidation efforts by these Indian states in FY25. They are aiming to control spending growth while prioritizing capital expenditure for development. This might lead to a slight increase in revenue collection but with a lower fiscal deficit.