FREE

MOSL: ECOSCOPE-States remain frugal; Immense potential to support 4QFY18 GDP growth

ECOSCOPE: States remain frugal; Immense potential to support 4QFY18 GDP growth

 

• Based on data for 20 states, we find that state governments continue to be cautious in their total spending, which grew only 6.9% YoY during April-November 2017 against an average growth of ~16% in the past five years. Slower growth was primarily due to continued decline in capex - down ~14% against budget estimate (BE) of a decline of ~1% in FY18.
• Slower spending growth up to November 2017 implies that if states have to meet their full-year BEs, their spending will have to grow ~36% YoY in the remaining four months of FY18, providing immense support to 4QFY18 GDP growth. However, it will depend entirely on their ability to garner budgeted receipts.
• Total receipts grew 11.7% YoY in the first eight months of FY18, of which tax receipts (including the center's share) have grown over 13%. Grants-in-aid, however, have grown at a meager 3.6% YoY during this period. Aggregate fiscal deficit of 20 states, thus, was only 48.9% of BE up to November 2017, lower than 60.7% in the corresponding period last year.
• An analysis of tax collection by the general government (center + 20 states) confirms that tax receipts have grown ~13% in April-November 2017, similar to 13.3% growth in the past five years. Also, it amounts to 56.4% of BE up to November 2017 against 53.5% during the last five years. Going by the past five years' trend, tax collections could beat BEs by INR200b in FY18. Nevertheless, non-tax receipts - unrelated with GST - could throw a nasty surprise.