States’ average per capita debt jumps 16.4% for 3-year period ending FY21: SBI Research

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March 10, 2021 10:17 PM

The maximum addition in states' borrowings has taken place this fiscal due to the pandemic that has eaten away their revenue by 21.2 per cent, it said.

States' average per capita debtThe combined borrowings of the states, or their fiscal deficits, have jumped to 4.5 per cent or Rs 5,81,808 crore in FY21, from 2.8 per cent or Rs 3,97,067 crore in the previous fiscal, as they had to heavily borrow to meet the contingency came from the pandemic.

The average per capita debt of 13 major Indian states has risen by 16.4 per cent in the three years ending FY21, while their per capita income grew by 7.1 per cent during this period, according to a report by the SBI Research.

The maximum addition in states’ borrowings has taken place this fiscal due to the pandemic that has eaten away their revenue by 21.2 per cent, it said.

The combined borrowings of the states, or their fiscal deficits, have jumped to 4.5 per cent or Rs 5,81,808 crore in FY21, from 2.8 per cent or Rs 3,97,067 crore in the previous fiscal, as they had to heavily borrow to meet the contingency came from the pandemic.

In FY19, the combined debt of the states was only 2.6 per cent or Rs 3,23,727 crore, according to the SBI Research.

But Karnataka, Jharkhand, Madhya Pradesh, Uttarakhand saw their per capita debt soaring over 20 per cent or over Rs 60,000 per head in the next fiscal, according to an analysis of the budgets of 13 large states by SBI Research.

The rise in outstanding debt is understandable as the states had to borrow more given the lack of resources available to them due to the lockdowns and in the pandemic-hit FY21, their revenues fell by a steep 21.7 per cent, says the report.

Though the pandemic has led to a national level decline in per capita GDP by almost Rs 7,200 in FY21 from FY20, states like Karnataka, UP, Bengal had their per capita GSDP increase by over Rs 10,000 in FY21, primarily because of the variance in unrealised taxes.

When it comes to revenue mobilisation, the CGST and SGST revenue estimates show that state revenues have fallen drastically from what they had anticipated in their FY21 budget. The revised CGST+SGST estimates are 21.2 per cent lower than budgeted for FY21. Additionally, state VAT and sales tax collections are down 14.7 per cent from the budgeted figures, due to lower crude prices and reduced consumption in the initial months of FY21.

To bridge the gap, the states have curtailed capital expenditure by a sharp 11.3 per cent from what was proposed initially in FY21 budgets, but have budgeted for 37 per cent spike in FY22.

Significantly, these 13 largest states have budgeted average fiscal deficit of 3.3 per cent for FY22, down from 4.5 per cent in FY21. This will help the consolidated fiscal deficits to come down to around 12.7 per cent of GDP, assuming that the central deficit is likely to be lower at 8.7 per cent this fiscal than the projected 9.5 per cent,” the report said.

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