Punjab's capital expenditure lowest in FY25 at 6.2% vs highest of Gujarat at 36.2%: NSE
Oct 20, 2024, 10:08 IST
In FY25, Punjab is set to experience financial challenges as its capital-to-revenue expenditure ratio is the lowest among all states, standing at just 6.2%, highlighted a research report by the National Stock Exchange (NSE).
This means that for every rupee Punjab spends, a very small portion is being allocated towards capital expenditure, which is crucial for long-term infrastructure development.
In contrast, the research showed that the states like Gujarat lead the way with a much higher ratio of 36.2%, signaling a stronger focus on capital spending that can drive future growth.
"The capital-to-revenue expenditure ratio, a measure of expenditure quality, is set at 20.7 % for FY25BE, declining from 21.2 % in FY24RE. Punjab has the lowest ratio at 6.2 %, while Gujarat leads at 36.2 %" said the report.
The report also highlighted that the overall, capital expenditure by Indian states is expected to moderate in FY25 after three years of strong growth.
It stated that the total capital spending for the fiscal year is estimated to increase by just 6.5 % to Rs 6.5 lakh crore. This is a notable slowdown compared to the sharp 39.3 % rise in FY24, which was marked by a post-pandemic push to boost infrastructure and public projects.
The capital-to-revenue expenditure ratio, a key indicator of the quality of spending, is also set to decline slightly to 20.7 %in FY25 from 21.2 %in FY24, reflecting a more cautious approach by states.
At the same time, revenue expenditure, which covers recurring costs like salaries, subsidies, and interest payments, is expected to grow by 8.9 % to Rs 44.2 lakh crore. This is the slowest growth in the last four years, indicating tighter control over everyday spending.
"Committed expenditure (interest payments and pensions), on the other hand, remains high, comprising about 24 % of total revenue expenditure and consuming nearly a quarter of revenue receipts" the report added.
Despite this, the report noted that a large portion of revenue expenditure remains committed to non-discretionary costs. Interest payments and pensions alone account for about 24 % of total revenue expenditure and consume nearly a quarter of the revenue receipts, limiting states' flexibility in spending.
This leaves less room for discretionary spending and makes it harder for these states to invest in development and growth-oriented projects.
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This means that for every rupee Punjab spends, a very small portion is being allocated towards capital expenditure, which is crucial for long-term infrastructure development.
In contrast, the research showed that the states like Gujarat lead the way with a much higher ratio of 36.2%, signaling a stronger focus on capital spending that can drive future growth.
"The capital-to-revenue expenditure ratio, a measure of expenditure quality, is set at 20.7 % for FY25BE, declining from 21.2 % in FY24RE. Punjab has the lowest ratio at 6.2 %, while Gujarat leads at 36.2 %" said the report.
The report also highlighted that the overall, capital expenditure by Indian states is expected to moderate in FY25 after three years of strong growth.
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The capital-to-revenue expenditure ratio, a key indicator of the quality of spending, is also set to decline slightly to 20.7 %in FY25 from 21.2 %in FY24, reflecting a more cautious approach by states.
At the same time, revenue expenditure, which covers recurring costs like salaries, subsidies, and interest payments, is expected to grow by 8.9 % to Rs 44.2 lakh crore. This is the slowest growth in the last four years, indicating tighter control over everyday spending.
"Committed expenditure (interest payments and pensions), on the other hand, remains high, comprising about 24 % of total revenue expenditure and consuming nearly a quarter of revenue receipts" the report added.
Despite this, the report noted that a large portion of revenue expenditure remains committed to non-discretionary costs. Interest payments and pensions alone account for about 24 % of total revenue expenditure and consume nearly a quarter of the revenue receipts, limiting states' flexibility in spending.
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Some states are more burdened than others by this committed expenditure. Punjab, Kerala, Himachal Pradesh, and Tamil Nadu have earmarked over 35 %of their revenue receipts for these fixed costs in FY25, putting additional pressure on their finances. This leaves less room for discretionary spending and makes it harder for these states to invest in development and growth-oriented projects.