New Delhi: States should raise their capital outlay to around 3% of gross state domestic product (GSDP), or 20% of their budget resources, by 2031-32 to strengthen productive capacity and support India’s journey towards becoming a developed economy by 2047, revenue secretary Arvind Shrivastava said on Friday.
The recommendation was made in a presentation at the Union finance ministry’s two-day conference of state finance ministers and finance secretaries on financing India’s journey towards Viksit Bharat. States have currently budgeted around ₹11 trillion in capital outlay, equivalent to about 2.4% of GSDP and 16% of their budget resources, according to the presentation.
The presentation underlined the central role of state governments in achieving the Viksit Bharat objective, noting that much of the development agenda, including infrastructure, quality public services and productive , falls within the states’ remit. The journey requires states to accelerate growth in a sustained and sustainable manner over the next two decades and mobilize large amounts of resources, Shrivastava said.
States are expected to spend around ₹64 trillion in the current year, compared with about ₹55 trillion by the central government, he said. While governments have a direct role in providing public goods, infrastructure, and disaster management, their ability to do so depends on fiscal capacity, which, in turn, is linked to economic activity, taxes, and employment, according to the presentation.
Financing challenge
The revenue secretary also flagged wide variations in the fiscal capacity and debt position of states. Own per capita ranges from ₹5,000 to ₹38,000, while fiscal deficits range from 2.75% to 5.5% of GSDP. Outstanding liabilities range from around 19% to 46% of GSDP. The presentation also raised the question of whether all available tax bases are being utilized to their fullest.
The financing challenge, however, extends beyond state governments’ ability to raise resources. Shrivastava argued that states need to leverage their budgetary resources to funnel private capital into public infrastructure.
The department of economic affairs’ database has more than 1,800 public-private partnership projects with an estimated cost of ₹25 trillion, according to the presentation. PPPs are a well-established way of leveraging budgetary resources, it said.
However, such projects require visibility into revenue streams and careful comparison with debt-funded engineering, procurement, and construction models, while risks and rewards need to be measurable, range-bound, and shared fairly.
Private sector participation
Speaking at the conference, economic affairs secretary Anuradha Thakur called for higher private sector financing, stressing that government budgets alone are not enough to turn India into a developed nation by 2047. She highlighted the need for greater collaboration between the Centre and states in their shared goal for a developed India.
“In this backdrop, our partnership on policy issues, on tapping financial sources, and most importantly on implementation, can spearhead towards Viksit Bharat decisively. We know that we meet today in the backdrop of ongoing global difficulties,” she said.
Thakur said India has received four sovereign rating upgrades over the past 16-17 months from major international rating agencies. These include Japan’s JCR, which raised its rating on India by one notch to A- from BBB+. This underscores India’s “growing economic strength, improving business climate, and strengthening positions in the global investment landscape”, she said.
Asset recycling could also unlock resources for productive expenditure, with expressways and highways particularly amenable to such financing, the presentation said. It also highlighted land as a valuable resource and cited the Maharashtra experience of using land and urbanization value to finance infrastructure.
The presentation also made the case for looking beyond the fiscal space available with state governments to the financing capacity of the wider state economy. “The question is therefore not only how much fiscal space the state has, but how much investment the state economy can mobilize and how efficiently,” it said.
India’s investment rate is estimated at around 32-34% of GSDP, while credit-to-GSDP ratios vary considerably among states. Credit per capita ranges from about ₹25,000 to ₹3 lakh, according to the presentation. It cautioned that credit flows are a proxy for economic activity, but not necessarily fresh investment.
Credit flows also show considerable variation across sectors. Agricultural credit flow ranges from around ₹5,000 per capita, or 5% of GSDP, to about ₹60,000 per capita, or 15% of GSDP. MSME credit flow ranges from around ₹3,500 per capita, or 4% of GSDP, to ₹44,000 per capita, or 11% of GSDP. Housing credit ranges from around ₹700 per capita, or 1% of GSDP, to ₹15,000 per capita, or 4% of GSDP.
The presentation identified renewable energy, energy storage, critical minerals, artificial intelligence and data centres, tourism, agriculture value chains and the circular economy as areas for private investment, while stressing states’ role in providing land, power, connectivity and an enabling business environment.
It also called for fiscal reforms to create fiscal space and improve spending quality, alongside stronger local governments through better institutions, financial management, skills, technology, predictable transfers and greater own-revenue mobilization.
The discussions were held in the presence of Union finance minister , several chief ministers and deputy chief ministers. Chief ministers of Assam, Delhi, Goa, Haryana, Jammu & Kashmir, Kerala, Manipur, Meghalaya, and Nagaland attended the conference, along with deputy chief ministers of Arunachal Pradesh, Bihar, and Odisha.
Finance ministers from Andhra Pradesh, Assam, Gujarat, Himachal Pradesh, Jharkhand, Tamil Nadu, Tripura, Uttar Pradesh, Uttarakhand and West Bengal, as well as the minister of state for finance for Maharashtra, also attended.