Expressing concerns, global rating agency, Moody's Investors Service in its latest report has said that Indian states face difficulties in reducing deficits, constraining the country's ability to meet medium-term fiscal consolidation goals as economic growth slows.
According to the report, state-level deficits will be high at about 3 per cent of GDP for the fiscal year ending March 2020, due to persistent spending pressures and slowing economic growth. Without policy changes, the rating agency expects states' deficits to stay around current levels which will continue to challenge general government (combined central and state) fiscal consolidation.
Besides, Moody's noted that as a percentage of GDP, states' outstanding debt will remain around 25 per cent in fiscal 2019 and 2020. The agency expressed need of significant expenditure cuts and much higher revenue growth to achieve the Fiscal Responsibility and Budget Management (FRBM) Act baseline scenario of debt-GDP reaching 20 per cent by 2024-25.