Despite a strong increase in central government capital spending, disappointing growth in state capital spending and a likely decline in investment by central public sector enterprises (CPSEs), could drag down overall public sector capital spending India at a multi-year low.

“The sharp increase in capital spending by the Center over the past 18 or so months does not imply an increase in public sector capital spending, which matters to the economy,” the company’s economists said. financial services Motilal Oswal in a research note titled “The Curious Case of Tax Investments”.

“While Center investments are expected to increase in 2022-23, they are expected to contract for the third consecutive year for CPSEs and remain broadly flat for States. As a result, public sector capital spending is expected to fall to an eight-year low of 5.7% of GDP in FY23,” he said. Public sector investment accounted for 6% of GDP in 2021-22.

The Centre’s capital expenditure reached 2.3% of GDP last year and further increased by 52% in the first half of this year to reach ₹3.2 lakh crore or 2.5% of GDP .

A study of state public finances released Tuesday by ratings agency ICRA confirmed that states are not doing too well on investment so far this year. While revenue shortfalls have narrowed sharply for 18 major states so far in 2022-23, their capital spending has risen just 2.2% in the first half of the year, a far cry from their budget target of increasing capital expenditure by nearly 38%.

While these 18 states had targeted a capex of ₹6.2 lakh crore, they only managed to spend around ₹1.59 lakh crore between April and September, and spending will need to be increased to ₹4.6 lakh crore in the second half to catch up. the goal, CIFAR economists pointed out. This is a steep increase of 57% from the ₹3 lakh crore spent in the second half of last year.

“Unless capital project execution accelerates significantly in the second half of 2022-23, the states’ capital spending target for the year could be largely missed…Given the trend capital expenditures below budget as well as substantive expenditures in recent years, we are concerned that the combined expenditures of the 18 states are approximately 23% below budget estimates,” they concluded.

Some states, including Andhra Pradesh, Haryana, Uttar Pradesh and West Bengal, have forecast high growth of 77% to 127% in their capital spending for this year.