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Combined fiscal deficit of States goes up to 2.94% for 2017: Ind-Ra

By TIOL News Service

NEW DELHI, DEC 18, 2017: INDIA Ratings and Research has come out with a comprehensive study on fiscal health of 29 States. The study was done by its economist Dr Devendra Kumant Pant who has noted that the combined fiscal deficit of states averaged 2.16% during FY11-FY15 and it came under pressure due to Ujwal Discom Assurance Yojna (UDAY) and the implementation of the recommendations of the 7th Pay Commission. As a result, the combined fiscal deficit of the states in FY16 and FY17RE came in at 3.07% and 3.66% respectively. States issued UDAY bonds of INR989.6 billion in FY16 (0.72% of GDP) and INR1.10 trillion in FY17 (0.72% of GDP). Excluding the bonds issued, the combined fiscal deficit comes out to be 2.35% and 2.94% for FY16 and FY17RE, respectively.

The key highlights of the Report are:

1. Ind-Ra’s estimate shows that the combined fiscal deficit of states in FY18 would come in at 3.0% of GDP (INR4.99 trillion);

2. Combined fiscal deficit of the states in FY16 and FY17RE came in at 3.07% and 3.66% respectively due to UDAY the implementation of the Seventh Central Pay Commission;

3. Combined fiscal deficit of states for FY18 has been budgeted at 2.7% (INR4.48 trillion) of GDP;

4. The farm debt waivers announced by five states together are likely to widen the combined fiscal deficit of states by INR1,077 billion (0.65% of GDP);

5. Although FY18 budgeted figures for combined revenue and primary deficit of states are 0.04% of GDP and negative 0.93% of GDP, Ind-Ra’s estimate pegs them at negative 0.26% of GDP (FY17RE: negative 0.23% of GDP) and negative 1.23% of GDP (FY17RE: negative 1.97% of GDP), respectively;

6. Stress emanating from UDAY and salary/pension revisions so far has been absorbed adequately and with relatively little damage to state finances and their debt sustainability. However, the same cannot be said about farm loan waiver if it continues and spreads to other states. The probability of this is high in view of the upcoming state elections and general election in 2019. Debt waiver of only five states is 0.65% of GDP in FY18.


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