India Ratings report on state’s finances: Key Facts

A Fitch Group company, India Ratings has released its report on states finances. The important findings of the report are:

  • Loan waiver and other support measures for farmers are expected to raise the aggregate fiscal deficit of states to 3.2 per cent in 2018-19.
  • Further, the fiscal deficit would increase by 40 basis points (100 basis points or bps equal to 1 per cent) in the financial year 2019-20.
  • The competitive populism in the nature of farm loan waivers and other financial support schemes is expected to take centre stage in the run-up to the next general elections and this would have a larger impact on fiscal and revenue deficit to gross state domestic product ratios for Madhya Pradesh, Kerala and Rajasthan, among non-special category states, in the financial year 2019-20.
  • The states revenue account on aggregate is expected to clock a deficit of 0.5 per cent of GDP in the financial year 2019-20 due to higher growth in revenue expenditure than in revenue receipts.
  • The aggregate revenue expenditure is expected to grow by 18.9 per cent in 2018-19 from 11.2 per cent during the financial year 2017-18.
  • It is expected that efforts to provide for the funds to support measures for the farm sector would adversely impact capital expenditure.
  • The capital expenditure as a percentage of GDP would come in marginally lower at 3.0 per cent during the current fiscal, from the Budget estimate of 3.07 per cent in the financial year 2018-19.
  • The agency expects a below 3 per cent capital expenditure ratio for Tamil Nadu, Haryana, West Bengal and Kerala in the financial year 2019-20.
  • The higher expenditure would push the aggregate debt to GDP ratio1 per cent during 2018-19 against a Budget estimate of 24.3 per cent.
  • Madhya Pradesh, Tamil Nadu and Kerala are most susceptible to stage an increase in the debt burden in the financial year 2019-20. The agency estimates the gross market borrowings of states to be Rs 5.7 trillion in FY 2019-2020.

The India Ratings does not view the increase of the debt to be detrimental to the states’ debt sustainability position, even though states would channelise some part of the borrowings towards meeting revenue expenditure.



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