States’ total fiscal deficit likely to be 4.1% for FY22: Ind-Ra

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August 28, 2021 6:00 AM

The aggregate revenue deficit of states is projected to come in marginally lower at 1.3% of GDP in FY22 than the earlier forecast of 1.5% of GDP, Ind-Ra said.

This would lead to states further easing restrictions on business and commercial activity,” the agency said.This would lead to states further easing restrictions on business and commercial activity,” the agency said.

Thanks to improvement in revenue receipts, the aggregate fiscal deficit of states is expected to moderate to 4.1% of the gross domestic product for the current financial year, India Ratings (Ind-Ra) said on Friday. In February, the rating agency had forecast the deficit to be 4.3% for FY22. The states’s aggregate fiscal deficit was estimated at 4.6% for FY21.

The impact of the second Covid wave on the economy notwithstanding, Ind-Ra estimates India’s nominal GDP to grow 15.6% in FY22, higher than its February 10 forecast of 14.5%.

“The revenue receipts of state governments are expected to improve, backed by an economic recovery, resulting from a large section of the populace receiving vaccinations.

This would lead to states further easing restrictions on business and commercial activity,” the agency said.

The aggregate revenue deficit of states is projected to come in marginally lower at 1.3% of GDP in FY22 than the earlier forecast of 1.5% of GDP, Ind-Ra said.

The rating agency’s latest analysis is based on information of 14 states for Q1FY22 (Chhattisgarh, Haryana, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Odisha, Punjab, Rajasthan, Tamil Nadu, Uttarakhand, Telangana and Uttar Pradesh).

The aggregate revenue receipts of these 14 states grew 30.8% to Rs 3.95 lakh crore during April-June FY22. Although the considerable improvement is due to a low base, revenue receipts grew 1.5% in Q1FY22 over the pre-Covid period of Q1FY20, Ind-Ra said.

The aggregate own tax and non-tax revenue receipt of these states grew 77% y-o-y and 46% y-o-y, respectively, in Q1FY22, which indicates these states’ revenue collection was resilient to the disruptions from the second Covid wave, it said.

In line with the slight moderation likely in fiscal deficit, Ind-Ra has projected that the aggregate debt/GDP ratio of states to come in lower at 32.4% in FY22 (previous estimate: 34%).
During April-July 2021, states’ aggregate market borrowing was lower at Rs 1.94 lakh crore compared with Rs 2.1 lakh crore in April-July 2020.

“This is primarily attributable to an improvement in states’ aggregate revenue receipts during Q1FY22,” the agency said. Ind-Ra has estimated that the gross market borrowings of states, in aggregate, will increase to Rs 8.2 lakh crore in FY22 (previous estimate: Rs 8.4 lakh crore).

All states’ gross market borrowings were Rs 7.88 lakh crore in FY21. The net market borrowings would be Rs 6.2 lakh crore in FY22 (FY21: Rs 6.45 lakh crore).

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