State governments in India such as Madhya Pradesh, Rajasthan and Himachal Pradesh, are expected to record higher than budgeted debt in FY 2023 due to higher capital expenditure than budgeted, India Ratings said in a report. Higher debt would lead to record high borrowings by the state governments this year to the tunes of Rs 5.72 lakh crore, the report added.
In separate reports released last week, experts have raised concerns over India’s state government revenues, which have been laggard in comparison to the central government. Several states in the country resorting to offering freebies like farm loan waiver and restoring the old pension system, is a matter of concern, as it could further hamper their fiscal burden, according to a report by SBI Research.
India Ratings said it expects the aggregate fiscal deficit of the 20 states, which account or over 80 per cent of real GDP (gross development product), to come in marginally higher at 3.36 per cent of GSDP (Gross state development product) than the budgeted 3.31 per cent of GSDP (Rs 7.08 trillion), because of the higher capital expenditure than budgeted in for FY 2023.
Five states, namely Himachal Pradesh, Madhya Pradesh, Meghalaya, Rajasthan and Telangana, have budgeted their respective fiscal deficit at higher than or equal to 4 per cent of GSDP, it added. Fiscal deficit is the excess of a government’s expenditure to its income, a higher fiscal deficit means higher debt for the government, since it has to raise money to finance the difference.
The aggregate net market borrowings of the 20 states is budgeted at a record Rs 5.72 lakh crore in FY 2023, up 13.59 per cent from last year, India Ratings said. The borrowings are led by states such as Maharashtra, Madhya Pradesh, Telangana and West Bengal, it said. While Assam, Haryana and Rajasthan have projected lower net borrowings this fiscal year, it added.
“With an upward turn in the trajectory of interest rates and record borrowings by both union and state governments, the interest costs of the government are set to see a spike in FY 2023,” the rating agency said in a note published Friday.