Gross fiscal deficit of states set to turn 3.2% of GDP

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fe Bureaus: Mumbai, Feb 23 2010, 23:56 IST

The gross fiscal deficit of state governments is budgeted to increase to 3.2% of GDP in 2009-10 (Budget estimates), compared with 2.6% of GDP in 2008-09 (revised estimates). Revenue account turned from a surplus of 0.2% in 2008-09 (RE) to a deficit of 0.5% of GDP in 2009-10 (BE), according to a study ‘State Finances: A Study of Budgets of 2009-10,’ released by the Reserve Bank of India (RBI).

The study also noted that state-wise, revenue accounts of four states—West Bengal, Punjab, Kerala, and Rajasthan—recorded revenue deficits during 2008-09 (RE). Jharkhand turned from a revenue deficit to a revenue surplus state. In 2009-10 (BE), 10 states are expected to turn revenue deficit from a surplus status in the previous year. Overall, the revenue account is expected to be adversely impacted in the case of 23 states during 2009-10 (BE), the study noted.

The debt-GDP ratio of state governments came down to 26.2% in 2008-09 (RE) from the peak level of 32.8%, at the end of March, 2004. However, outstanding debt is budgeted to increase marginally to 26.5% of GDP by end-March 2010. The XII Finance Commission had recommended that states achieve a debt-GDP ratio of 30.8% till the end of March 2010.

Compared to the XII Finance Commission target of interest payment to revenue receipts (IP-RR) ratio of 15% to be achieved by 2009-10, the combined IP-RR ratio of the states declined from 26% in 2003-04 to 14.4% in 2008-09 (RE). The IP-RR ratio is budgeted to rise marginally to 14.5% in

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