India Ratings in its latest report has pointed out that competitive populism, in the nature of farm loan waivers and other financial support schemes, would take the centre stage in the run-up to next general elections in April-May. A larger impact is expected on fiscal and revenue deficit to gross state domestic product ratios for Madhya Pradesh (MP), Kerala and Rajasthan, among non-special category states, in FY20.
However, it maintained a stable outlook on the finances of the states for FY20. It further highlighted that the aggregate fiscal deficit of the states will come in higher at 3.2% in FY20, which is higher than the FY19 mid-year outlook forecast of 2.8%, although this is higher than the fiscally prudent level of 3%, this will not pose any significant upside risks to these states' aggregate debt burden in FY20. On the expenditure side, it expects states' aggregate revenue expenditure to grow 18.9% to Rs 33.28 trillion in FY20. The announcement of farm loan waivers by MP, Chhattisgarh, Assam and Rajasthan extends the list of states that have resorted to this mechanism to address farmers' distress.
Besides, it expects states' aggregate capex/GDP to come in marginally lower at 3% in FY20 from the budget estimate of 3.07% for FY19. It also expects the aggregate debt/GDP to rise to 25.1% in FY20 from the budgeted 24.3% for FY19. Moreover, the agency estimates gross market borrowings of the states to be Rs 5.7 trillion in FY20.