Gujarat Budget 2022: Capex Growth Targets May Be Stretched, Says India Ratings

The fiscal deficit for Gujarat, one of India's largest states by output, may settle lower than budgeted as capital spending targets appear stretched, according to India Ratings & Research.

The state's budget has pegged the fiscal deficit at 1.64% of gross state domestic product. This is well within the limit of 4% of GSDP prescribed by the Fifteenth Finance Commission. The deficit, however, may settle even lower.

"India Ratings and Research expects the fiscal deficit of Gujarat to come in at Rs 31,507 crore in FY23, which works out to be 1.45% of GSDP," the agency said in a note published on March 9.

Gujarat’s revenue account is budgeted to record a surplus of Rs 10,060 crore or 0.05% of GSDP in FY23. "This broadly looks realistic. The agency expects the revenue surplus to come in marginally higher at 0.06% of GSDP."

According to India Ratings, budget estimates build in implausible assumptions regarding capital expenditure.

Gujarat has projected capital spending at Rs 30,235 crore in the revised estimates of FY22, 6.3% lower than budgeted. For FY23, Gujarat is pegging capex at Rs 37,369 crore, up 23.6% over the revised estimates of FY22.

"Historically, on an average, capex growth in the state was 2.9% during FY15-FY20. The annual capex growth for FY23 appears to be steep on an already higher base," said India Ratings. As such, the agency said the budget estimate for capex is stretched and unattainable in FY23.

Revenue expenditure estimates are more reasonable.

In FY23, revenue spending is budgeted to grow at 11.54% over the revised estimate of FY22. "The average revenue expenditure growth of Gujarat during FY16-FY20 had been 10.2%," India Ratings said.

Non-interest revenue expenditure, which generates demand in the economy, is budgeted to grow at 12.38% in FY23. "The expenditure growth assumed in the FY23 budget looks reasonable."

Gujarat has built its budget proposals on an expectation of 13.3% nominal GDP growth against 17.4% in FY21.

"The GSDP growth assumption appears attainable, given the average GSDP growth of 12.4% during FY15-FY20," said India Ratings. It expects the state's nominal growth at 13.6% in the next financial year. The rating agency, however, has analysed the state's budget on a more conservative nominal growth estimate of 12% in FY23.

The state expects own non-tax revenue of Gujarat to grow at 36.01% year-on-year in FY23. The state's own non-tax revenue growth is pegged at 18.0%.

"The revenue growth assumption in FY23 with respect to the state's own tax revenue and grants is realistic," said India Ratings. But the estimate of 2.5% growth in tax devolution from the union government in FY23 is conservative, it said. "The state’s conservative assumption regarding tax devolution may provide buffer to factor in for any unforeseen expenditure or lower growth in tax revenue."