Fiscal pressure on states to increase because of freebies; capex likely casualty: Emkay

New Delhi [India], March 20 (ANI): Several states are showing signs of fiscal pressure because of the freebies and capital investment is likely to be the casualty, said Emkay Global in its states finance report.
Highlighting the issue, the report said that states may try to rationalize their spending on these schemes but they will face pressure.
"Thus, while states may try to rationalize their spending on these schemes, the genie is now out of the bottle - we expect fiscal pressure on states to only increase from here on with capex (especially discretionary capex) likely to be the casualty," the report said.

The report says that the states are likely to spend less in the Financial Year (FY) 2025, to check the fiscal deficit-to-GDP ratio (by 20-30bps) than the budgeted 3.2 per cent.
However, the FY25 estimate of 3 per cent is still higher than FY24's 2.8 per cent, with several states facing fiscal stress.
Of the 10 major state budgets for FY26, five states show either worsening or unchanged revenue balance-to-GDP ratios and an equal number have higher fiscal deficits.
The report says that the strain from the increased welfare spending is already visible--Maharashtra, for example, has cut funding for the 'Ladki Bahin' scheme from Rs 460 billion in FY25 to Rs 360 billion in FY26, removing "ineligible beneficiaries".
The revenue deficit-to-GDP is set to rise from 0.6 per cent in FY25 to 0.9 per cent in FY26 because of the Rs 2,100 monthly payout to women under the scheme.
So far, states have borrowed Rs 1.5 trillion in the month against Rs1.2 trillion, which is 26 per cent higher. This is on the back of much lower borrowing throughout the rest of Q4FY25, and indeed, the year. The report adds that the recent surge in borrowing has not been accompanied by higher spending.
Data for 19 states till Feb 25 shows that their total expenditure had shown only 10 per cent growth (vs 20 per cent budgeted), with revenue growing at 12 per cent (vs 19 per cent budgeted), whereas capex growth was negative (-4 per cent vs 20 per cent budgeted).
This is also corroborated by the cash balance of states which was as high as Rs 2.9 trillion at Feb-end (30 per cent higher than Feb-23). Lower spending can also be seen in the high unspent balances in various SNA accounts for Centrally Sponsored Schemes. (ANI)