Going forward, much depends on states' room for spending, Pg10

Key Highlights:

• States' fiscal deficits exceeded 3% of GSDP between FY2021-FY2024 due to relaxed borrowing limits.
• The Union government provided GST compensation loans of Rs 2.6 trillion to states during FY2021-FY2022.
• Capex loans to states increased from Rs 0.1 trillion in FY2021 to approximately Rs 1.5 trillion in FY2025.
• Cash transfers to women across 11 states are projected to reach Rs 1.5 trillion in FY2026, about 0.8% of GSDP.
• Capital expenditure and loans & advances of 28 states grew at a CAGR of 18.5% during FY2021-FY2025, doubling to Rs 8.4 trillion.

Detailed Insights:

• During FY2021-FY2024, states were allowed additional borrowings beyond their base limits (3-4% of GSDP), with the Union government and the 15th Finance Commission permitting an extra 0.5-1.1%.
• The central government transferred Rs 3.7 trillion during FY2021-FY2025 under the 50-year interest-free capex loans, which most states availed.
• Some states completed power sector reforms prescribed by the Centre and availed Rs 1.3 trillion between FY2022-FY2025, with the 15th FC recommending additional borrowing flexibility of 0.5% of GSDP for these reforms.
• States were allowed to carry forward unutilised borrowings from FY2021 to FY2022, and the 15th FC provided flexibility to carry forward unutilised borrowings to subsequent years (FY2022-FY2026).
• Enhanced social welfare spending by states, including cash transfers to women, has increased significantly, but some states are curtailing other spending to accommodate these transfers.
• The recommendations of the 16th Finance Commission regarding resource sharing, borrowing limits, and carry-forward provisions will be crucial for states' spending capacity in the coming years.

Key Concepts Involved:

• GSDP (Gross State Domestic Product): A measure of the total economic output of a state.
• Fiscal Deficit: The difference between a government's total expenditure and its total revenue.
• CAGR (Compound Annual Growth Rate): The year-over-year growth rate of an investment over a specified period of time.
• Finance Commission: A constitutional body that determines the method and formula for distributing the tax proceeds between the Centre and states, and among the states.