Expressing concerns, credit rating agency, ICRA in its latest report has said that states are likely to miss fiscal consolidation targets in the current financial year (FY19), on the back of various majors like funding of crop loan waivers, election-related spending and the flood relief. The states’ fiscal deficit is primarily financed by issuing state development loans (SDLs).
As per the report, gross issuance of SDLs contracted by 3.4% to Rs 1.32 trillion in April-August of FY19, on sharp decline in issuance by Uttar Pradesh, Maharashtra and Gujarat. However, excluding these three states, the remaining states have seen rise of 14.7% in total SDL issuance during the reported period. The rating agency further predicted that Rs 1.3 trillion of SDLs are scheduled to be redeemed in FY19, much higher than Rs 0.8 trillion redeemed in FY18.
ICRA said that a rise in revenue expenditure beyond the budgeted levels may lead to fiscal slippages for some states, unless their capital spending is curtailed below, or their revenue receipts are enhanced above the budgeted level for FY19. The agency also pointed that a reduction in the capital spending will lead to an unfavourable outcome and this may also impair the quality of expenditure. However, it said that higher-than-budgeted revenue, which is likely following the recent amendments related to IGST and GST compensation cess, and a back-ended pickup in headline SGST collections, will be an encouraging development.