Why States Miss Monthly Spending Ceilings

CAG warns most states of fiscal imprudence as spending overshoots limits.

Rupee

Illustration: Dominic Xavier/Rediff

Most Indian states are bunching up their expenditure in the last month (March) of the financial year, an analysis of 2023-2024 state finance audit reports by the Comptroller and Auditor General (CAG) showed, cautioning against 'non-adherence to financial propriety'.

A review of data available for 15 states and the National Capital Territory of Delhi revealed that expenditure in March far exceeded the ceilings prescribed by the Union finance ministry, which caps last-quarter spending at 25 per cent and March spending at 10 per cent of the budget.

'Maintaining a steady pace of expenditure is a crucial component of sound public financial management, as it obviates fiscal imbalances and temporary cash crunches arising from unanticipated heavy expenditure,' CAG observed.

Of the 16 states and Union Territories, 12 -- including Delhi, Haryana, Maharashtra, Gujarat, Jharkhand, Rajasthan, Madhya Pradesh, Odisha, Bihar, Goa, Himachal Pradesh and Uttar Pradesh -- breached the prescribed levels either for a particular department or for total budgeted expenditure.

Of these, Maharashtra (25.14 per cent), Gujarat (19.32 per cent), Jharkhand (19.12 per cent), Madhya Pradesh (17.54 per cent), Bihar (15.5 per cent), Rajasthan (13.6 per cent), and Goa (12.04 per cent) exceeded the finance ministry's limit for March, with monthly payouts accounting for more than 10 per cent of their annual expenditure.

Of the 16 states and UTs, only Delhi and Karnataka adhered to the overall monthly expenditure ceiling.

Monthly expenditure data for Mizoram, Nagaland and Chhattisgarh were not available in the CAG reports.

Several states also ignored their own self-imposed expenditure ceilings.

In Odisha, for instance, the government had prescribed a 40 per cent ceiling for the fourth quarter, with March expenditure limited to 15 per cent.

However, CAG found that 15 departments failed to adhere to these guidelines.

In Himachal Pradesh, while guidelines capped last-quarter expenditure at 25 per cent of total budget allocation, five grants -- including the Public Works, Power Development, and Housing -- spent over 40 per cent between January and March.

Similarly, Haryana, which set its March-quarter expenditure at 30 per cent, saw 24 major heads exceed this ceiling, with housing spending at 57 per cent and medium irrigation a striking 87 per cent in the last three months of the financial year.

In Uttar Pradesh, 67.8 per cent of the Social Welfare Department's budget was spent in March alone.

Delhi's finances showed a similar pattern, with several grants such as Education, Home, Public Works, and Welfare incurring half their full-year spending in the last month of the financial year.

Aditi Nayar, chief economist at Icra, says the bunching of expenditure is sometimes a reflection of bill clearance during a concentrated period.

"One of the concerns this poses is cash flow management, and concentration of borrowings in a short period of time," she added.

Devendra Kumar Pant, chief economist at India Ratings & Research, said that such back-loaded spending is often triggered by late tax devolution and cash flows from the Centre.

These cause a surge of payments and clearances in March and create what he termed a 'lumpiness' in expenditure.

CAG: 20 States Spent 27% Of Capex In Apr-Aug

States spent 27 per cent of their budgeted capital expenditure during the April-August period of 2025-2026 (FY26), up by 13.6 per cent year-on-year (Y-o-Y), an analysis of monthly account reports of 20 states by CAG showed.

Of the 20, data for which is available, 16 states spent less than 30 per cent of their budget estimates (BEs) for capex in the first five months of FY26.

Telangana led the group of 20 states by utilising the highest proportion of its BE, spending 39.28 per cent.

Following closely were Kerala (38.82 per cent), Haryana (37.72 per cent), and Madhya Pradesh (32.79 per cent).

On the lower end, states like Tripura and Chhattisgarh spent just 6.53 per cent and 11.02 per cent of their budgeted capex, respectively.

Key states like Andhra Pradesh, Telangana, Gujarat, Haryana, Maharashtra, and Karnataka led the charge with double-digit and triple-digit growth in capital spending.

However, Rajasthan, Punjab, Uttar Pradesh, West Bengal and Tripura saw decline in capex compared to the same period in the preceding year.

According to Controller General of Accounts (CGA) data released last month, the Centre's capex for April-July FY26 stood at 30.9 per cent of the FY26BE, increasing by 32.7 per cent compared to last year.

Revenue expenditure of the 20 states increased modestly by around 8.7 per cent to Rs 15.43 trillion during April-August period of FY26.

Tax revenue collections grew 8.36 per cent to Rs 12.5 trillion during the first five months of FY26.

States' reliance on borrowings increased sharply during the first five months of FY26.

Borrowings and other liabilities rose 23.9 per cent year-on-year, reaching Rs 3.21 trillion in April-August.

Among major states, Gujarat's borrowings more than doubled to Rs 13,227 crore in April-August FY26 from Rs 5,027 crore a year earlier.

Madhya Pradesh, Maharashtra, Jharkhand and Odisha also saw major surges in borrowings.

In contrast, Haryana, Uttar Pradesh, Meghalaya and Tripura reported lower borrowing levels compared with the previous year.

Madhavi Arora, chief economist at Emkay Global Financial Services, said the budgeted growth in revenue expenditure (19 per cent) and capital expenditure (30 per cent) by states in FY26 is unrealistic.

"While subsidies are set to be rationalised (5 per cent FY26BE growth), it remains to be seen if this materialises. With revenue also at risk due to GST 2.0, the axe may fall on capex," she added.

Feature Presentation: Aslam Hunani/Rediff