NEW DELHI: An analysis of the monthly accounts of 15 states indicates that India’s state governments sharply cut down on spending over the past two quarters.
In fact, going by the fifteen states for which numbers are available, state receipts tanked by a sharp 18 per cent year-on-year in the second quarter (Q2FY21) leading to a record 12 per cent decline in government spending-the worst fall in a decade, according to analysts from Motilal Oswal.
The states which were used for the analyses were Andhra Pradesh, Chhattisgarh, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Odisha, Rajasthan, Tamil Nadu, Telangana, Uttar Pradesh, and Uttarakhand.
These 15 states account for a little less than 70 per cent of state government finances.According to analysts from Motilal Oswal Financial Services, a look at the numbers shows that states’ receipts declined for the third consecutive quarter in Q2FY21.
However, this was the first such quarter when all three major constituents declined: taxes (including devolution receipts), states’ own non-tax revenue receipts, and Grants from the Centre.
“In fact, while the share of taxes has fallen to approximately 70 per cent of all receipts, grants from the Centre increased to 25 per cent of all receipts in the first half of the fiscal year,” the analysts wrote.
As for the states own taxes, the collections of stamp duty and registrations declined only a mild 1 per cent in Q2FY21, far better than the 61 per cent contraction in Q1. The continued contraction in incomes led to a sharp reduction in spending.
“(This) was almost entirely due to the record fall in revenue spending since the decline in capital spending was slower than in the previous quarter. Aggregate revenue spending fell 9.3 per cent y-o-y in 2QFY21, following growth of 10.6 per cent in the first quarter. On the other hand, aggregate capital spending contracted 30 per cent last quarter,” the MOFSL report noted.
Around 50 per cent of the states’ revenue spending comprise: interest payments (which grew just 2.3%), salaries and wages (which fell 1.1%), pensions (lower by 16.6%), and subsidies (contracting 19%).