State Finances: Insights from FY24 Budgets of 21 Key States

• Assessment of State Finances , FY24 budgets in 21 key Indian states, representing 93% of the GDP.
• These states anticipate an average GDP growth of 10.9%, slightly above the Union Budget’s 10.5% projection.
• FY24 revenue receipts expected to increase by 10.4%, driven by strong growth in states’ own revenues, both tax and non-tax.
• Tax buoyancy in these states projected to improve from 1.1 in FY23RE to 1.3 in FY24BE, surpassing the Centre’s expectations.
• Capital spending by states has increased significantly over the past two years, with a 21.7% capital-to-revenue expenditure ratio in FY24BE.
• Some states fell short of capital expenditure targets in FY23, particularly in education, water supply, transportation, and rural development.
• Projected fiscal deficit for these 21 states in FY24 is 3.2% of GSDP, aligning with the 15th Finance Commission’s recommendations.
• Market loans will fund 77.2% of this deficit, with gross borrowings expected to reach Rs 9.3 trillion in FY24BE.
• States are gradually reducing reliance on market borrowings, partly due to increased loans from the Centre.
• Despite this trend, there are borrowing disparities among states, with some, like Kerala and Madhya Pradesh, experiencing higher growth.
• Several large states, including UP, Tamil Nadu, and Maharashtra, undershot borrowing targets, leading to gradual tightening of State Development Loans (SDL) spreads.
• SDL spreads, especially in the 10-year bucket, have decreased to around 26 basis points, nearly half the long-term average of 50-55 basis points.

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