Not just Centre, but also states witnessed an increase in FY22 tax income

Centre announced a record-breaking 34 percent yearly increase in gross tax revenues in FY22, state governments are likely to perform even better. According to data from 20 major states reviewed by FE, their total tax receipts — own revenue plus divisible-pool receipts from the Centre — increased 39 percent year on year to Rs.18.8 trillion in April-February FY22, owing to a reviving economy, improved compliance, and higher transfers from the Centre. The overall tax target for all states in FY22 was Rs.22.85 trillion, implying a 26 percent annual growth rate.

After two years of Covid-related splurging, state governments appear to have been able to scale up their capital investment in FY22 due to an increase in tax collections and a reduction in welfare spending.

The 20 states examined reported a cumulative capex of Rs.3.44 trillion in April-February of FY22, up 37 percent year on year, compared to a 14 percent year on year fall in the equivalent period of FY21.

Based on the customary clustering of expenditure in March — a third of states’ capex in FY21 was accounted for in the last month of the year — these states could declare spectacular capex of Rs.5 trillion in FY22, up from Rs 3.7 trillion in FY21.

The states reviewed’ capex pace is outstanding, even when compared to the same period in FY20, the pre-pandemic year, with an 18% increase over the two-year period. They may, however, fall far short of the lofty capex plan of Rs.6.09 trillion for the year.

To meet their investment target of Rs.7.23 lakh crore for FY22, all states’ combined capital spending must increase by 44 percent year on year. According to the trend, total state spending in FY22 might be about Rs.6 trillion, a whopping Rs.1 trillion more than in FY21.

Recognizing that state capex is typically increased near the end of a financial year, the Centre front-loaded tax devolution this year to allow states to maintain capex momentum, which is critical for fast-tracking gross capital formation in the economy given the continued weakness of private investments.

The Centre disbursed Rs.8.83 trillion to states as their part of the divisible tax pool for FY22, which is 19 percent more than the revised estimate (RE) for the year. In addition, the Centre front-loaded the full back-to-back loan component of Rs.1.59 trillion to states in FY22 to compensate for their GST revenue deficit from the protected level.

Uttar Pradesh, Maharashtra, Tamil Nadu, Madhya Pradesh, Karnataka, Gujarat, Rajasthan, Andhra Pradesh, Telangana, Odisha, Kerala, Bihar, West Bengal, Haryana, Chattisgarh, Jharkhand, Punjab, Uttarakhand, Himachal Pradesh, and Tripura are among the 20 states examined.

Among these states, Uttar Pradesh’s capex was Rs.51,255 crore in April-February of FY22, a 59 percent rise year on year. Madhya Pradesh’s capex was Rs.33,929 crore (up 51%), Karnataka’s was Rs.29,598 crore (up 4%), and Tamil Nadu’s was Rs.28,034 crore (18 percent ).

With these 20 states achieving 88 percent of the tax collection in April-February, their total tax revenues may have exceeded the applicable aggregate objective in FY22.

Because of improved revenue flows, these states were able to reduce borrowings; they borrowed 27% less in April-January than the previous year.

The revenue expenditures of the 20 states increased by 14% year on year in April-February of FY22, which was lower than the planned pace of 20% growth by all states over FY21 actuals.

In addition to states, the Centre has enlisted CPSEs to promote public capex, which is critical to reviving investment-led economic growth.

In Q3FY221, investment expenditure as measured by gross fixed capital formation (GFCF) increased by only 2% year on year. Continued capital investment by the Centre, CPSEs, and states is required to propel the GFCF until private investors take the plunge.

According to official sources, large central public-sector firms – corporations and undertakings — invested Rs.4.72 trillion in FY22, accounting for around 80% of their total capital spending objective.

According to the Controller General of Accounts, the Centre’s capex was at Rs.4.85 trillion, or 81 percent of the revised FY22 target, showing a gap in full-year accomplishment.

Source: Financial Express