Cash Transfers Adds To Revenue Expenditure Of States
Of the total expenditure of 19 states between FY22 and FY25, 85 per cent went towards revenue expenditure and 15 per cent for capital expenditure, finds ICRA
Chennai: Welfare spending by state governments have increased in recent years while revenue expenditure accounts for 85 per cent of the total expenditure. The combined cash transfers to women by 11 states totalled Rs. 1.5 lakh crore in FY26.
Of the total expenditure of 19 states between FY22 and FY25, 85 per cent went towards revenue expenditure and 15 per cent for capital expenditure, finds ICRA.
The revenue expenditure of state governments includes outgo on salaries, pensions, interest payments, power subsidy, and other welfare spending. Growth in revenues and borrowing limits influence the ability and the priorities of spending by state governments.
In recent years, the social welfare spending of several states has increased, which includes, social security pensions, transfers to low-income households, and cash transfers to women. The combined cash transfers to women by 11 states totalled Rs. 1.5 lakh crore in FY26 or a sizeable 0.8 per cent of gross state domestic product (GSDP), up from Rs 12,000 crore in FY2023 or 0.1 per cent of GSDP. Jharkhand, Karnataka, West Bengal, Madhya Pradesh, Assam, Bihar are some of the states which have been transferring cash to their women.
However, despite the rise in the welfare spending of the states, their revenue deficit widened mildly to 0.7 per cent of GSDP in FY2025 from 0.5 per cent of GSDP in FY2022. Moreover, the combined capital expenditure of the 19 states displayed a robust CAGR of 16 per cent between FY2022- FY2025.
As a proportion of the GSDP, their capital expenditure increased to 2.5 per cent of the GSDP in FY2025 from 2.2 per cent of GSDP in FY2022 and was mostly met with capex loans.
This led to rise in revenue deficit and capital expenditure, and the combined fiscal deficit of the sample states widening to 3.2 per cent of the GSDP in FY2025 from 2.8 per cent in FY2022. This fiscal deficit was funded by augmented borrowing limits, which included loans from the Centre, reform-linked borrowing etc. as well as the provision of carry-forward of unutilised borrowing.
