States also seem to be leading in public spending as Centre has less room for expenditure.
Twelve of the 17 states the Reserve Bank of India (RBI) categorises as 'non-special' grew faster than the national economic growth rate of 6.7 percent in fiscal 2018, according to a CRISIL's 'States of growth 2.0' report. But, these states failed to excel in job creation.
In a majority of these states, growth was low in 'employment-intensive' sectors like manufacturing, construction and trade, and hotels transport and communication services, as compared to the national level. The health and education sectors also remain deficient in these states.
The growth was also not found to be equitable as low-income states have not sustained high growth long enough to lessen the difference in per-capita income as compared with the high-income states. In fact, the report states that the difference is widening.
States are now leading in public spending as Centre has less room for expenditure. "Indeed, states appear to have taken the baton from the Centre in terms of spending, especially capital expenditure, in recent years. This has become more relevant after the 14th Finance Commission increased the allocation of funds to states and gave them the leeway to prioritise spending as per need. Nearly two-thirds of the capex in the economy is now being incurred by the states," said Dharmakirti Joshi, chief economist at CRISIL.
Overall, Uttar Pradesh, Karnataka and Bihar were the biggest spenders. Rajasthan, Jharkhand, Uttar Pradesh and Telangana spent most out of their budget on capex.
"States must also be wary of their debt profiles. While the Fiscal Responsibility and Budget Management (FRBM) Act had helped states recover their fiscal health considerably, recent trends show they are slipping. Debt ratios have risen in many states -- with the assimilation of Ujwal Discom Assurance Yojana (UDAY), farm loan waivers, and Pay Commission hikes," said Dipti Deshpande, senior economist at CRISIL.The debt ratio in Punjab, Kerala and Rajasthan was over 30 percent. Chhattisgarh, Maharashtra and Karnataka maintained it at a relatively low level. Rising primary deficit is found to be the major reason or a rising debt ratio.