State Fiscal Deficits

A key government objective is to bring the deficit down to 4.5% of GDP by 2025/26. Respondents were evenly split on whether it would succeed

A sharp reduction in states' deficit augurs well for the Centre's fiscal planning

The RBI's Handbook of Statistics on Indian States showed that apart from Arunachal Pradesh, Haryana, Sikkim and Odisha, all the states saw a higher fiscal deficit in FY21 as compared to FY20

Deficits resulting from spending on socio-economic programmes constrain ratings for the state: Agency

The RBI, in a report in June 2022, said that several Indian states are posting worrisome numbers, mainly due to populist measures

"The revision was made due to better-than-expected growth in revenue receipts and higher growth in the nominal GDP in FY22," the agency said

Revising outlook on state finances to improving in FY23 from, Ind-Ra expects the aggregate fiscal deficit of states to stand at 3.6% of their GDP from 3.5% in FY22 on back of robust revenue growth.

An RBI analysis showed that during the second wave, 22% of municipalities reported revenue loss of an alarming 50% and more

India's fiscal challenge can get worse if states spend more even with lower revenue growth

The pandemic continues to affect state finances with first quarter revenue and expenditure numbers pointing out that a full economic recovery is still a long road ahead.

The Covid-19 pandemic could increase budget deficits and indebtedness of state governments as spending needs to exceed revenue collected, S&P Global analysts YeeFarn Phua and Ruchika Malhotra said

But their Budget numbers are inclined to be overstated due to substantial revisions in revenues and grants shared by the Centre

The agency's earlier forecast for FY21 was 4.5 per cent. The revision was made due to a sharper-than-expected contraction of 6.1 per cent in the nominal GDP

The aggregate fiscal deficit of states is likely to be at 4.3 per cent of the GDP in 2021-22 compared to 4.6 per cent in 2020-21, says a report by India Ratings and Research

In FY20, provisional accounts indicate that states' revenue receipts were 12 per cent lower than the Budgeted amount

Steeply falling revenues and central grants amidst rising expenditure to fight Covid-19 led to 18 of the largest states reporting a collective revenue deficit of 285% of Budget Estimates in April-June

The rise in spreads is a direct measure of market displeasure than a rise in yields. This is because if spreads widen, SDL yields could still rise even when G-sec yields remain where they are

These 13 states include Bihar, Odisha, Andhra Pradesh, Gujarat, Uttarakhand and Meghalaya

The borrowing alternative offered by the Centre to make up for the shortfall in the promised compensation will lead to the states' fiscal deficits widening to 4.25 - 5.52 per cent

This may take the general deficit of the country-- both the Centre's and states'-- to 11-14 per cent of GDP in FY21