State Governments' expenditure on Subsidies increased significantly on account of COVID-19
Sai Krishna Muthyanolla
December 21, 2021
RBI released the latest edition of the ‘States Finances: A Study of Budgets’ report. As per the data presented in this report, while the revenue expenditure on wages & salaries, and operations & maintenance as a share of GSDP has decreased over the years, the expenditure on subsidy has increased on account of COVID-19.
Like in the case of the Union government, State governments also incur various types of expenditure. The expenditure is in the form of both revenue and capital expenditure. Revenue expenditure is more like operational expenditure and is recurring in nature while capital expenditure is more on time for building assets. Few of the major heads under revenue expenditure incurred by states include – interest payments, wages & salaries, pensions, subsidies, etc. Based on the revenue of the state & its spending priorities, the expenditure of states on various items changes from state to state.
In this story, we look at the trends in revenue expenditure of the states for a few of the key heads – salaries & wages, operations & maintenance, subsidies, etc.  The data provided in the Reserve Bank of India’s (RBI) “States Finances: A Study of Budgets” report is used for the purpose of analysis. The analysis of the trends is made as a ratio of the specific expenditure type and GSDP (Gross of State Domestic Product) of the respective state. The GSDP numbers used in the story are from the data provided in RBI’s Handbook of Statistics of Indian States. GSDP at current prices with the base year as 2011-12 is considered.
Expenditure as a share of GSDP on Wages & Salaries: Increased in certain states while it decreased in others
The trends in expenditure as a share of GSDP on wages & salaries have varied over the 10-year period from 2011-12 to 2020-21.  Data is not available for certain years & certain states. Further, the expenditure on wages & salaries for 2020-21 is revised estimates and not actuals.
Here is what the data has to say for a few of the states.
Jharkhand has a significant fall in the proportion of expenditure towards Operations & Maintenance (O&M)
Compared to expenditure incurred on wages & salaries by any State government, the expenditure incurred on Operations & Maintenance (O&M) is lower. Analysis of expenditure incurred on O&M shows that barring a few states, the proportion of this expenditure compared to GSDP has largely remained the same. The expenditure increased at par with the increase in GSDP without any additional burden. Here is what the numbers say.
Increase in Subsidy expenditure during 2020-21 across most of the states.
A new statement is included in RBI’s 2020 report of  “State finances: A study of Budgets report” that provides additional information on subsidies by the state governments since 2018-19. The type of subsidies included in this expenditure is not specifically mentioned, but a review of the report indicates that all expenditures incurred by the states in the form of extending subsidies – to industries, farmers, food, etc. are included.
As per the data provided in the RBI report, most of the states have witnessed an increase in the subsidy expenditure in 2020-21, as per the revised estimates. The increase in 2020-21 could be due to the support extended by the respective state government in view of the COVID-19 pandemic. The subsidies extended during the pandemic were in the form of food, sustenance expenditure, subsidies to industries (especially MSMEs), etc.
Revenue expenditure as a share of GSDP reduced except for Subsidies
Among the three types of revenue expenditure by state governments that have been analysed in the story, it is observed that for most of the states, the expenditure incurred on wages & salaries and operations & maintenance has reduced as a proportion of GSDP. While there are variances over the years for many of the states without a clear trend of increase or decline, there is an overall decline in the expenditure on these two items as a share of state GSDP. Though the expenditure has increased in absolute terms, the higher growth of GSDP meant that the proportion of expenditure has actually reduced.
However, subsidies present a different picture with the onset of the COVID-19 pandemic. With the onset of the COVID-19 pandemic in February 2020, the subsidy expenditure increased significantly for most states. If states whose data for all the three years (2018-19 to 2020-21) is available are considered, then the subsidy expenditure increased by 8.48% in 2019-20 and by 12.48% in 2020-21.
Featured Image: State Governments’ expenditure on Subsidies