Farm loan waivers, implementation of Pay Commission awards and issuance of UDAY bonds have put pressure on states’ fiscal position. The total farm loan waiver during FY18 amounted to 0.32% of the GDP as per revised estimates as compared with 0.27% to budget estimates.
The consolidated gross fiscal deficit of states overshot the budget estimates in FY18 due to shortfall in states’ own-tax revenues and higher revenue expenditure. Data from RBI’s state finance for FY18 and FY19 show states’ gross fiscal deficit touching 3.1% of GDP in FY18 (revised estimates) compared with 2.7% in budget estimates. Fiscal pressures are emerging for several states on the expenditure side.
For FY19, states have budgeted a consolidated gross fiscal deficit of 2.6% of GDP, with 11 states planning to remain above the 3% threshold. In FY19, states’ revenue capacity is likely to grow with the stabilisation of GST and the consequent expansion of tax base and efficiency.
Outstanding liabilities of states have been growing at double-digits consistently, barring FY15. The debt-to-GDP ratio of all states together increased from 22.8% in FY12 to 24.3% in FY19 (BE). State-wise data reveal that the debt-to-GDP ratio increased in FY19 for 16 states. States’ borrowing costs have been rising steadily, with their bond issuances attracting premium on the Centre’s bond yield.