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MOSL: ECOSCOPE-States’ spending muted but center supports in 3QFY18-Large shortfall in tax receipts on account of GST unlikely

ECOSCOPE: States’ spending muted but center supports in 3QFY18; Large shortfall in tax receipts on account of GST unlikely

 

• Based on monthly data of 20 states, we found that aggregate spending of states has risen by just 1.8% YoY in 3QFY18, marking the slowest growth at least since FY11. While core revenue spending rose 1.7% YoY, capital spending declined by 5.3%, recording a fall for the third consecutive quarter.
• Frugal spending is likely to have been caused by a weakness in tax receipts, which rose by a meager 2.4% YoY in 3QFY18. The aggregate fiscal deficit of the states touched 52.6% of Budget Estimates (BE) during April-December 2017, lower than 56.4% in FY17, but higher than the average of 43.5% in the last five years.
• Fiscal spending may have supported real GDP growth in 3QFY18, as total spending of the general government (center + 20 states) grew 11.8% YoY in 3QFY18 – up from 2.4% in 2Q. Within total spending, capital spending surged by 28.8% on account of prolific spending by the center, while core revenue spending growth remained weak at just 4.9%.
• Combined analysis of tax receipts also reveals that actual tax receipts in FY18 may just match BEs, implying that large shortfalls are unlikely on account of GST. Non-tax receipts — unrelated with GST — are more likely to throw a nasty surprise.