Page 18 - CII ARTHA India’s Growth Prospects

Trends resumption of the economic Expenditure the pandemic peak of 2020-21 Nevertheless, while budgeted it has declined marginally to 31 per cent in FY21 and is has also moderated after the
during Covid-19 and a
4.5 per cent of GDP in
budgeted to fall to 27.6 per
sharp spike in FY21. This could
capital expenditure provides
with the decrease continuing
in Revenue activity. However, this was not Trends through 2022-23(PA). However, a the spending direction, the 2022-23 and is expected to cent in FY24 essentially due to be on account of robust
amount actually spent really
remain at the same level in
revenue receipts and support
fiscal discipline practiced by
sustained during FY23 as
moderate rise in revenue
Receipts provisional accounts showed a expenditure is budgeted for FY24 matters. Here what is seen is 2023-24 (BE). This has the states. Yet it is still above from the Centre.
constrained the states from
the 20 per cent level
that states have been
with social sector expenditure
drop in revenue receipts to
13.2 per cent of GDP owing QUALITY OF STATE being 8 per cent of GDP. postponing actual spending channelising funds towards mandated under the FRBM To conclude, while the state
EXPENDITURE HAS
to lower tax and non-tax owing to the uncertainty of undertaking developmental Act. Moreover, at the finances at the aggregate level
IN FY24, STATES HAVE revenues of states and SHOWN AN The cut back in revenue revenue streams. This year, too, expenditure in areas where disaggregated level, debt to have shown signs of
BUDGETED FOR A reduced grants from the IMPROVEMENT OVER expenditure is making it possible many of the states have yet to resources are most needed. GDP ratio may remain higher improvement, there are
Hence it is not surprising that
utilize the Rs 1.3 trillion capex
deviations in the states which
than 25 per cent of gross
HEALTHY REBOUND IN centre due to withdrawal of THE YEARS for states to take a lead in loan in full and are requesting in 2021-22, allocations for state domestic product need to be addressed. States
REVENUE RECEIPTS GST compensation cess. pushing capex spending, the centre for extension as the education, sports, art and (GSDP) for many States. This should prioritise further
With revenue management a especially in sectors such as
However, in the current fiscal matter of concern, the states infrastructure to improve the capex by states have picked up culture, relief for natural calls for urgent steps towards reduction of debt and fiscal
(FY24), states have budgeted have brought down their business environment. only recently resulting in calamities, urban development, debt consolidation at the state deficit relative to GDP so that
The study of revenue receipts for a healthy rebound of aggregate expenditure to be bunching of expenditures. The agriculture and allied activities, level and a glide path needs to the states are aligned with long
of the states indicates a firm revenue receipts. Many state within the confines of fiscal The analysis shows a distinct recent Interim Budget has and rural development have be set for the purpose. term goals of the Centre. This is
rebound in revenue receipts governments such as Kerala deficit mandates. As a result, improvement in the quality of continued the support to been reduced due to paucity important to fulfil India’s
to 13.7 percent of GDP in and Karnataka are also aggregate expenditure of the State expenditure, as is borne states for capex in the form of of resources. HIGH DEBT IN STATES ambition of emerging as US$5
FY22 from 13.0 per cent in contemplating additional states declined from 17.2 per out from the crucial ratio of 50-year interest free loan trillion economy in the coming
the previous year on account revenue augmenting measures cent of GDP in FY21 to 16.6 revenue expenditure to capital which is expected to provide a Analysis of REMAIN A CHALLENGE, future.
of the easing of the lock- to spur the economy. per cent in FY22 due to outlay (RECO). The RECO is set further leg up to the state WITH DEBT TO GDP
down restrictions imposed reduced needs of Covid-19 to moderate to 5.0 in 2023-24, capex efforts. Trends in Debt RATIO ABOVE THE
related spending. Nevertheless, from 6.0 in the provisional Besides, the share of MANDATED 20 PER
accounts of 2022-23 and in
Revenue Receipts of States (as % of GSDP) aggregate expenditure has 2021-22 which is in line with the committed expenditure, After the pandemic peak in CENT LEVEL

14.3 continued to fall in FY23 and is RBI suggested ratio. The RECO which includes on salaries, 2020-21, outstanding liabilities
provisionally estimated at 16 interest payments, of the states have moderated. The debt service ratio,
per cent of GDP. In FY24, was 7.0 in 2020-21. administrative services & This is borne out from decline measured in terms of interest
13.7 states have gone ahead to raise The improvement in RECO is pensions, remains high though in the debt to GDP ratio from payment to revenue receipts
aggregate expenditure by a
whopping 17.6 per cent of premised on the robust 27.8 per
GDP in the hope that the cent rise in the consolidated
13.2 capital outlay of states budgeted
states’ own tax revenue along
13.0 with resource transfers from in the current fiscal as compared
the Centre, would provide to an expansion of 18.6 per cent
them the requisite space to seen in 2022-23. The strong
growth in both tax and non-tax
2020-21 2021-22 2022-23 (PA) 2023-24 (BE) meet their development revenues of states as well as tax

priorities.
Note: PA is Provisional Accounts and BE is Budget Estimates devolution from the centre such
Source: RBI as interest free loans, among
At a disaggregated level, States
appear to be cutting back on others has provided states with
Of the total revenue receipts Hence, raising avenues for revenue expenditure which has the necessary fiscal space to
push up capital outlay.
to be accrued by the states in enhancing non-tax revenue shown a secular decline since
2023-24, 58 per cent, or warrants urgent attention for

Rs.24.79 lakhs, is proposed to which states should impose

be raised by the states’ own user charges on their utilities RECO (Revenue Expenditure to Capital Outlay) Ratio
revenue while 42 per cent or such as water, power and 7.1
Rs. 18.30 lakhs would accrue other public services, royalties 6.3 6.1
from the devolution made and premium on mining etc as 5.0
through the central share in this would not only generate

state taxes including grants. Of revenue but would also
the states’ own revenue, a increase economic efficiency.
major chunk, 49 per cent, Besides, states should also
would be contributed by state improve its tax system 2020-21 2021-22 2022-23 (PA) 2023-24 (BE)
taxes while states’ own through reforms and
non-tax revenues would innovative tax administration. Note: PA is Provisional Accounts and BE is Budget Estimates

Source: RBI
contribute 8 per cent to the
exchequer.
18 ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY 19
QUARTERLY JOURNAL OF ECONOMICS
QUARTERLY JOURNAL OF ECONOMICS
FEBRUARY 2024 FEBRUARY 2024

according to Niti Aayog and are hesitant to under Article 6 of the Paris consider implementing a
RMI. The move encourages finance/refinance large-scale Agreement. It will help nationwide policy mandating
manufacturers and project green hydrogen projects. create a marketplace for the use of Green M15 fuel i.e.
developers to invest in green • The production cost of Indian green fuels like green mixing 15 per cent green
hydrogen and its derivatives various green fuel hydrogen and its methanol with petrol, in
like green ammonia and technologies, such as green derivatives, green methanol, transportation and other
methanol, putting India among hydrogen and its and SAF, among others, in applicable sectors, supported
those leading countries, such derivatives, is higher. the international market. by incentives for producers
as the United States and the However, grey hydrogen, • There’s a need for speeding and consumers to adopt this
European Union, which have alongside various grey up strategic interventions fuel. This could be a pivotal
allocated public funding for manufacturing methods, has for the Green Hydrogen step in India's journey
green hydrogen. towards a greener and more
historically benefited from Transition Program by
subsidies. Without a robust offering incentives for both sustainable future.
Establishing a market for green and liquid global carbon green hydrogen production • To ensure widespread
ammonia and methanol is a market, pricing the value of and electrolyser availability of Green M15 fuel,
global issue. In India, carbon and embedded manufacturing. These there’s a need for investment
forward-thinking standards by emissions in the production initiatives will catalyze in the necessary
the Bureau of Indian Standards, and usage of grey hydrogen industry growth. infrastructure for its
such as blending DME with becomes challenging. This is production, distribution, and
LPG and methanol with diesel, why, initially, green • The cost of renewable storage.
are significant steps towards hydrogen seems more energy can be further
integrating green fuels. reduced through energy • Campaigns should be
expensive than grey surplus banking provisions, launched to educate the
hydrogen.
especially for sectors public and other stakeholders
• The cost of funding remains mandated to use green about the benefits of using
a persistent bottleneck, hydrogen. Green M15 fuel and address
presenting a considerable • The government should misconceptions.
challenge for project implement targeted
developers, impacting the incentives to boost the By adopting these
optimization of capital export of green molecules. recommendations, India can
expenditure and project It will help establish India as make significant strides towards
execution. energy self-reliance,
a global leader in environmental sustainability, and
renewable energy.
Suggestions • A mechanism should be economic growth.

developed to facilitate Conclusion
Challenges To address the challenges, we low-cost financing and
provide benefits like
suggest that the government
take several steps to provide a accelerated depreciation This is the time to take
Despite government efforts much-needed boost to the for green hydrogen immediate action to overcome
to promote green hydrogen industry, such as: infrastructure investments. all the bottlenecks on the road
and its derivatives, the sector • The government should towards leading the global
is still in its infancy, and • As in the initial days of expand the FAME India transition to sustainable energy.
acknowledging and addressing renewable energy, the (Faster Adoption and With right policies in place and
the hurdles that impede our government mandated its Manufacturing of (Hybrid the development of a market for
full potential in this critical usage through Renewable &) Electric Vehicles in India) green methanol and ammonia,
sector is essential. Among the Purchase Obligation (RPO). Scheme to include green India can unlock the full
various challenges are - potential of green hydrogen and
Similarly, we suggest that a methanol vehicles in it. It its derivatives. Moreover, it will
• There isn’t much existing quota should be mandated will not only boost the provide a much-needed boost
demand and a developed for the use of green market but also provide for the production, distribution,
market ecosystem for hydrogen in sectors like support to the green and usage of green hydrogen and
green hydrogen and its fertilizers, chemicals, steel, hydrogen ecosystem in the its derivatives across sectors.
derivatives like green and power generation. country. Such initiatives will not only help
ammonia and methanol, not Creating demand through • There’s a need for funding India in achieving targeted
only in India but also policy will spur sectoral and support for research climate goals but also position it
globally, compared to other growth and reduce the and development in the as a leader in the green energy
conventional fuels. production cost of green areas of green hydrogen revolution.
hydrogen.
• Project developers face and methanol-based
difficulty in getting final • Leveraging its international technologies. It will further
offtake agreements signed. relations, the government help enhance efficiency and
should expedite the signing reduce costs.
• In the absence of advance
offtake contracts, lenders of bilateral agreements • The government should