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MOSL: ECOKNOWLEDGE-Public investment to take a hit in FY18; Farm loan waivers not fiscal expansionary

​ECOKNOWLEDGE: Public investment to take a hit in FY18; Farm loan waivers not fiscal expansionary

• ​In our study of 2017-18 budgets of 17 states, we had found that states' capex is budgeted to grow 17% and revenue spending at 12-year low of 9.6% in FY18. After including Punjab (PB), Uttar Pradesh (UP), and Uttarakhand (UK), we make four key conclusions.
  
• Farm loan waivers don’t imply fiscal expansion. Total spending by 20 states is budgeted to grow at 9.5% in FY18, the slowest pace in 13 years. Further, aggregate fiscal deficit of 20 states is budgeted at 2.7% of GSDP this year, similar to 2.6% of GSDP in FY17 (3.5% of GSDP including UDAY).
  
• Public investment is likely to take a serious hit in FY18. States' capex (including loans & advances) is budgeted to decline (~1%) for the first time in two decades, while revenue spending is budgeted to grow ~12%. Accordingly, while the share of rural sector in total spending is budgeted at the highest in two decades, spending on transport sector is budgeted to grow at 13-year low of 7.5%.
  
• Amid weak private investments, declining states' capex will restrict the revival in investment cycle, as the central government alone is unlikely to make a difference.
  
• With total spending of the general government (center + states) budgeted to grow ~8% in FY18 - less than half the growth seen in FY17 - we continue to believe that real GDP growth would ease from 7.1% in FY17 to ~6.8% in FY18 with downside risks, much lower than the market consensus of 7.4%.