Fiscal Deficit of 13 states decline by 25% in FY18: ICRA

18 Jun 2018 Evaluate

Rating agency ICRA in its latest report has said that India’s thirteen states have reported an average 25.1% decline in their fiscal deficit in last financial year ( FY18) to Rs 3.2 trillion as compared to Rs 4.3 trillion in financial year 2017, mainly on account of a contraction in capital outlay. Even though, their revenue has surged 7.5% in the last financial year, which is sharply lower from 11.5% a year ago. As per the report, this slowdown in revenue growth was led by a contraction in the non-tax revenue, comprising grants from the Centre and states' own non-tax revenues, and a mild slowdown in the pace of growth of tax revenue, comprising Central tax devolution and states' own-tax revenues.

However, the agency estimates in its report that the pace of growth of the aggregate tax revenue of 13 states improved to 10.1% in FY18 from 7.7% in FY17, as the CAG data is only provisional. The pre-actuals for FY18 indicate that growth of aggregate revenue expenditure of these 13 states eased to 8.8% as compared to 13.1% in Financial year 2017, while the capital outlay contracted by 9.4% in FY18 in contrast to the healthy growth of 17.1% in FY17. It said that the contraction in capital outlay can be on account of a combination of factors, including the lack of fiscal space led by the slowing growth of revenue receipts, re-prioritisation of spending after the farm loan waiver announcement by some leading states, base effect related to the Uday scheme (of the power sector) and the delay in presentation of budgets by a few states in FY18 due to the assembly elections.

Additionally, the report also highlighted that the pace of growth of tax revenue collected on items, which at present are not under the Goods and Services Tax (GST), would impact the revenue of the states. As per the report, higher tax collection in this fiscal as it believes that they may net more VAT from petroleum products given the spike in crude prices. VAT is typically levied on an ad valorem basis by the states, and higher crude prices would ensure that they net higher revenues from higher retail prices, provided the Centre does not reduce the basic excise duty. For the FY19, sales tax collections of the states on oil products are likely to continue to grow at a healthy pace. The annual growth of the aggregate VAT collection on oil products of all states could exceed 20% in Q1 FY19.

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