Motilal Oswal Financial Services

COPE

The Economy Observer

4 July 2024

Combined fiscal deficit at 8.7% of GDP in FY24



Government investments surpass 5% of GDP for the first time ever

Based on the provisional/supplementary data of 20 states , total receipts of all states grew 7.4% YoY in FY24P (the lowest

in three years) compared to 12.4% in FY23 (and much lower than 16.8% as per FY24RE). At the same time, total spending

grew faster, at 9.6% YoY in FY24P vs. 12.7% YoY in FY23 (and 20.3% as per FY24RE). Total receipts, thus, were at a three-

year low of 13.3% of GDP in FY24P vs. 13.5% in FY23, while total spending was unchanged at 16.3% of GDP.

As a result, states’ aggregate fiscal deficit stood at INR9.0t in FY24P compared to INR7.5t in FY23 and INR10.3t in FY24RE.

As a percentage of GDP, it stood at 3.1% in FY24 vs. 2.8%/3.5% in FY23/FY24RE. It implies that states’ fiscal deficit was

95% of BEs (and 88% of REs) in FY24P compared to ~85% in FY23.

An analysis of individual states suggests that the fiscal deficit in FY24P exceeded their revised targets in four states (AP,

HR, PB, and TS), while it was less than 80% of FY24REs in as many as seven states (AS, BH, CT, GJ, JH, MH, and OD). The

remaining nine states posted a deficit equal to 80-100% of their targets. The actual deficit was the highest at 146% of

FY24RE in Telangana (TS), and it was the lowest – at only 47% of the target – in Bihar (BH) last year.

Within states’ total receipts, while own receipts (taxes and non-taxes) have increased 11.5% YoY in FY24P (17.9% in

FY23), the transfer from the Center (devolution + grants) rose just 2.5% YoY (vs. 4.9% in FY23). The latter was due to a

contraction of 21.8% YoY in ‘grants from the Center’ in FY24P. Within total tax receipts, states’ own taxes grew 10.3%

YoY in FY24 (vs. 19.6% YoY in FY23), while states’ share in central taxes (devolution) grew 19.1% in FY24P, much higher

than the growth of 5.6% in FY23. Thus, states’ total tax receipts grew 13.4% in FY24P vs. 14.3% in FY23.

Within states’ spending, the growth in capital spending outpaced revenue spending for the third consecutive year in

FY24. Revenue spending grew 7.3% YoY in FY24P vs. 12% growth last year, while capital spending (including loans &

advances, L&As) jumped 21.9% YoY, following 16.8% growth in FY23. Excluding L&As, the capex (or investments) of all

states grew 27% YoY in FY24P compared to a growth of 12.1% YoY in FY23.

A combined analysis of the central and state governments confirms that while total receipts rose 13.7% YoY in FY24P (vs.

12.4% in FY23), total spending grew slowly by 10.2% (at a four-year low rate) in FY24P (vs. 12.3% in FY23). While revenue

spending grew 7.0% YoY in FY24P (at a two-decade low rate), combined capital spending (with L&As) surged 25.3% YoY in

FY24P. The combined capex (excluding L&As) jumped 26.6% YoY in FY24P, following a 14.6% YoY growth in FY23.

Our calculations suggest that the GG fiscal deficit was 8.7% of GDP in FY24P, the lowest in four years and compared to

9.2% in FY23. While the states’ aggregate fiscal deficit in FY24 widened to 3.0% of GDP (from 2.8% each in the previous

two years), the Center’s deficit narrowed to 5.6% of GDP last year, from 6.4%/6.7% of GDP in FY23/FY22.

Total receipts of all the

states rose 7.4% YoY in

FY24, marking the slowest

growth in three years



States’ fiscal deficit at 3.1% of GDP in FY24P:

Based on the provisional data of 20

states, total receipts of all the states grew 7.4% YoY in FY24, marking the slowest

growth in three years and compared to 12.4% YoY growth in FY23. It implies that

states’ total receipts were 90.1% of BEs last year, the lowest in three years

(Exhibit 1).

At the same time, states’ total spending grew faster at 9.6% YoY in FY24P, compared

to 12.7% YoY in FY23. It implies that states’ total spending was 90.9% of BEs in FY24,

compared to 92.4% in FY23

(Exhibit 2).

Total receipts, thus, were at a three-year low

of 13.3% of GDP in FY24, compared to 13.5% in FY23, while total spending was

unchanged at 16.3% of GDP.

Data for all states is based on 20 major states, for which monthly data up to Mar’24 is available. These states account for 93-94% of all states’ Budget. The states/UT

covered in this report are Andhra Pradesh (AP), Assam (AS), Bihar (BH), Chhattisgarh (CT), Gujarat (GJ), Haryana (HR), Himachal Pradesh (HP), Jharkhand (JH),

Karnataka (KA), Kerala (KL), Madhya Pradesh (MP), Maharashtra (MH), Odisha (OD), Punjab (PB), Rajasthan (RJ), Tamil Nadu (TN), Telangana (TS), Uttarakhand (UK),

Uttar Pradesh (UP), and West Bengal (WB). Supplementary accounts are available for six states (AS, BH, HP, HR, PB, and OD), while provisional data is available for

other states.

Nikhil Gupta

– Research analyst

(Nikhil.Gupta@MotilalOswal.com)

Tanisha Ladha

– Research analyst

(Tanisha.Ladha@MotilalOswal.com)

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Motilal Oswal research is available on

www.motilaloswal.com/Institutional-Equities,

Bloomberg, Thomson Reuters, Factset and S&P Capital.

As a result, states’ aggregate fiscal deficit stood at INR9.0t in FY24P, compared to

INR7.5t in FY23 and INR10.3t in FY24RE. As a percentage of GDP, it stood at 3.1% in

FY24 vs. 2.8%/3.5% in FY23/FY24RE. It implies that states’ fiscal deficit was 95% of

BEs (and 88% of REs) in FY24P, compared to ~85% in FY23

(Exhibits 3 and 4).

Exhibit 1: Total receipts grew 7.4% YoY in FY24P…

States' total receipts

90.7

92.5

92.7

84.8

78.0

% of BEs

93.4

24.4

12.4

2.4

-4.3

FY17

FY18

FY19

FY20

FY21

FY22

FY23 FY24P

6.7

4.1

95.3

FY17

92.2

FY18

93.0

FY19

86.3

FY20

94.1

% YoY

90.1

Exhibit 2: …while total spending grew faster at 9.6% YoY

States' total spending

14.8

% of BEs

14.3

% YoY

12.8

12.7

9.6

12.0

14.5

12.8

7.4

5.0

85.9

FY21

90.8

FY22

92.4

90.9

FY23 FY24P

Exhibit 3: States’ aggregate fiscal deficit was 3.1% of GDP in

FY24…

States' aggregate fiscal deficit (% of GDP)

3.5

2.4

2.6

4.1

2.8

3.1

Exhibit 4: …and it stood at 95% of BEs in FY24, much higher

than 84.9% of BEs in FY23

States' aggregate fiscal deficit (% of BEs)

110.9

126.2

118.9

90.3 95.1 95.0

128.5

80.0 84.9

94.9

2.6

3.1

FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24P

Source: Comptroller and Auditor General (CAG), CEIC, MOFSL

Fiscal deficit in FY24P

exceeded the revised

targets in four states, while

it was less than 80% of

FY24REs in as many as

seven states

Four states exceeded their revised deficit targets in FY24P…:

An analysis of

individual states suggests that the fiscal deficit in FY24P exceeded their revised

targets in four states (AP, HR, PB, and TS), while it was less than 80% of FY24REs in

as many as seven states (AS, BH, CT, GJ, JH, MH, and OD). The remaining nine states

posted a deficit equal to 80-100% of their targets. The actual deficit was the highest

at 146% of FY24RE in TS, and it was the lowest – at only 47% of the target – in BH

last year.

…and it was higher than FY23 in as many as 12 out of 20 states:

As a percentage of

GDP, the individual state’s fiscal deficit ranged from as low as 1.0% of GDP in GJ to

5.5% of GDP in CT

(Exhibit 5).

The fiscal deficit, as a % of GDP, widened in FY24 (vs.

FY23) in as many as 12 out of 20 states covered in our study. It narrowed in the

remaining eight states (AS, BH, HR, HP, OD, PB, TN, and WB). CT saw the highest

expansion in its fiscal deficit (from 1.0% of GDP to 5.5%), while AS saw the highest

reduction (from 5.8% of GDP to 3.7%).

CT saw the highest

expansion in its fiscal deficit

last year, while AS saw the

highest reduction

4 July 2024

Exhibit 5: Comparison of provisional fiscal deficit of states in FY24P and FY23 (% of GDP)

State's fiscal deficit (% of GSDP)

FY23

FY24P

5.4

3.4

3.7

4.1

4.2

4.3

4.5

5.5

1.0

0.8

1.4

1.2

1.7

2.0

1.9

1.0

2.2

1.9

2.3

2.8

2.9

3.0

2.1

2.4

3.2

3.5

3.3

3.1

2.9

2.5

5.8

6.0

3.7

4.0

5.0

6.5

1.0

Source: State budget documents, CAG, CEIC, MOFSL

States’ total tax receipts grew

13% YoY in FY24, largely driven

by their own receipts

States’ own receipts grew faster than the Center’s transfers last year:

The total tax

receipts of all states grew 13.1% YoY in FY24P (at a three-year slow pace), compared

to 15% in FY23. At the same time, state’s own non-tax receipts increased 14.1% in

FY24P, similar to that in FY23. On the other hand, grants-in-aid contracted sharply

by 21.8% YoY in FY24P, marking the worst contraction in almost two decades and

compared to a growth of 4.0% YoY in FY23

(Exhibit 6).

A re-classification of these revenue sources confirms that the Center’s transfer to

states (devolution + grants) grew only modestly by 2.5% YoY in FY24P, down from a

growth of 6% in FY23. This was entirely led by a contraction in grants from the

Center, as states’ share in central taxes (devolution) grew 19.1% in FY24P, much

higher than the growth of 7.4% in FY23. States’ own receipts, on the other hand,

grew 11.1% YoY in FY24P vs. 17.9% YoY in FY23

(Exhibit 7).

Thus, states’ total

receipts grew 7.4% YoY in FY24P, largely driven by their own receipts.

Exhibit 6: While tax and non-tax receipts grew decently,

grants-in-aid contracted sharply in FY24P

(% YoY)

-35

-70

14.1

13.1

-21.8

FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24P

Estimates for all states are based on data of 20 states

Total taxes

NTR

Grants

Exhibit 7: States’ own receipts, thus, grew much faster than

Center’s transfers last year

States' own receipts

-7

-20

11.1

2.5

(% YoY)

Transfer from centre

FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24P

Source: CEIC, CAG, MOFSL

Capex of all states grew

27.0% YoY in FY24P,

compared to a growth of

12.1% YoY in FY23

Capital spending outpaced revenue spending for the third consecutive year:

Within

states’ spending, the growth in capital spending outpaced revenue spending for the

third consecutive year in FY24P. Revenue spending grew 7.3% YoY in FY24P vs.

12.0% growth last year, while capital spending (including L&As) jumped 21.9% YoY,

following 16.8% growth in FY23

(Exhibit 9).

Excluding L&As, the capex (or capital

outlays) of all states grew 27.0% YoY in FY24P, compared to a growth of 12.1% YoY

4 July 2024

in FY23. States’ capex (excluding L&As) stood at 87.4% of BEs in FY24P, higher from

an average of 80% in the past 5 years

(Exhibit 10).

Exhibit 8: Revenue spending of all states grew 7.3% YoY in

FY24P, while capital spending was up 21.9%

Revenue spending

-20

21.9

7.3

17.6

0.4

(% YoY)

Capital spending

Exhibit 9: States’ capex* was 87.4% of BEs in FY24P,

compared to an average of <80% in the last few years

States' aggregate capex*

88.4

82.3

81.9

11.9

72.0

69.2

-1.1

79.8

FY21

FY22

FY23 FY24P

28.7

79.1

12.1

% of BEs

% YoY

87.4

27.0

-5.0

FY19

FY20

FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24P

Estimates for all states are based on data of 20 states

FY17

FY18

* Capital spending less L&As

Source: CEIC, CAG, MOFSL

Only four of 20 states have

exceeded their capex budget

estimates (BE) target in

FY24P, while three states

met less than 80% of BEs

A look at individual states reveals that only four (BH, HP, MP, and TS) of 20 states

have exceeded their capex budget estimates (BE) target in FY24P, while three states

(AP, PB, and UP) met less than 80% of their BE targets, with PB meeting only 46% of

its target last year.

Further, AP and TS posted the highest growth in capex last year, which more than

doubled in both states (partly supported by a contraction in FY23), with >50%

growth in GJ as well. In contrast, four states (PB, KA, HP, and KL) saw lower capex in

FY24P compared to FY23

(Exhibit 11).

Exhibit 10: Comparison in capex growth in FY24P vs. FY23

States' estimated capex* (% YoY)

220

140

-20

-100

-9

-6

-3

FY23A

FY24P

146

211

All states estimates are based on 20 states

* Excluding L&As

All WB AS OD UK MP HR JH

TS AP

states

Actual data for FY23; Provisional/supplementary data for FY24

Source: CAG, CEIC, MOFSL

Total receipts rose 13.6%

YoY (vs. 12.7% in FY23),

while total spending grew

slowly by 10.2% in FY24 (vs.

12.3%)

Combined capital spending continued to grow strongly in FY24:

A combined

analysis of the central and state governments confirms that total receipts rose

13.6% YoY in FY24P (vs. 12.7% in FY23), while total spending grew slowly by 10.2%

last year vs. 12.3% in FY23

(Exhibit 12).

4 July 2024

Exhibit 11: Combined receipts grew 13.6% YoY, while total

spending grew just 10.2% YoY in FY24P

-15

Total receipts

(% YoY)

Total spending

Exhibit 12: Capital spending grew 25.4% YoY in FY24, with

only 7% growth in revenue spending

-10

Revenue spending

(% YoY)

Capital spending

25.3

7.0

13.6

10.2

FY14

FY16

FY18

FY20

FY22

FY24P

FY14

FY16

FY18

FY20

FY22

FY24P

Source: CEIC, CAG, Controller General of Accounts (CGA), MOFSL

Combined capex (excluding

L&As) grew 26.6% YoY in

FY24, following 21.6% YoY

growth in FY23.

Further, revenue spending grew at the two-decade lowest pace of 7.0% YoY in

FY24P, while combined capital spending surged 25.3% YoY

(Exhibit 13).

This was the

fourth consecutive double-digit growth in capital spending. The combined capex

(excluding L&As) grew 26.6% YoY in FY24P, following 21.6% YoY growth in FY23

(Exhibit 14).

As a percentage of GDP, the combined capex of the government

surpassed 5% of GDP for the first time ever in FY24P.

Combined fiscal deficit was 8.7% of GDP in FY24:

Our calculations suggest that the

GG fiscal deficit narrowed to 8.7% of GDP in FY24P, the lowest in four years and

compared to 9.2% in FY23. While the states’ aggregate fiscal deficit in FY24P

widened to 3.0% of GDP (from 2.8% each in the previous two years), the Center’s

deficit narrowed to 5.6% of GDP last year, from 6.4%/6.7% of GDP in FY23/FY22

(Exhibit 15).

As a percentage of BEs, states’ aggregate fiscal deficit was 95% in FY24P, while it was

just 93% for the Center, implying a combined fiscal deficit of 93.7% of BEs in FY24P,

lower than that in the past two years

(Exhibit 15).

Our calculations suggest

that the GG fiscal deficit

narrowed to 8.7% of GDP in

FY24 vs. 9.2% in FY23, the

lowest in four years

Exhibit 13: Combined capex grew 26.6% YoY and stood at

5.2% of GDP in FY24P

Combined capex*

% of GDP

37.8

21.6

1.4 -0.1

3.5

FY14

3.5

3.6

FY16

3.7

FY18

3.8

3.6

FY20

3.7

4.3

FY22

4.5

5.2

FY24P

26.6

% YoY

Exhibit 14: Combined FD of the government narrowed to

8.7% of GDP in FY24P

Fiscal deficit (% of GDP)

4.1

2.8

2.2

4.4

FY14

2.6

4.1

2.6

3.8

FY16

3.0

3.4

2.4

3.4

FY18

2.4

3.4

2.6

4.6

FY20

9.1

6.7

2.8

6.4

3.1

5.6

FY24P

Centre

States

14.7 12.9 14.0 14.8

11.2 12.7

FY22

Source: CEIC, CAG, CGA, MOSPI, MOFSL

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

4 July 2024

NOTES

4 July 2024

Explanation of Investment Rating

Investment Rating

BUY

SELL

NEUTRAL

UNDER REVIEW

NOT RATED

Expected return (over 12-month)

>=15%

< - 10%

< - 10 % to 15%

Rating may undergo a change

We have forward looking estimates for the stock but we refrain from assigning recommendation

*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall be within following 30 days take

appropriate measures to make the recommendation consistent with the investment rating legend.

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4 July 2024

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