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  3. States' fiscal deficit likely to be at 4.3% of GDP in FY22: Ind-Ra

States' fiscal deficit likely to be at 4.3% of GDP in FY22: Ind-Ra

16 Feb 2021 Evaluate

India Ratings and Research (Ind-Ra) in its latest report has said that the aggregate fiscal deficit of states is likely to be at 4.3 percent of the gross domestic product (GDP) in 2021-22 compared to 4.6 percent in 2020-21. It had earlier forecast FY21 fiscal deficit of states to be at 4.5 percent but revised it later due to a sharper-than-expected contraction of 6.1 percent y-o-y in the nominal GDP.

The agency has revised the outlook on state finances to stable for FY22 from stable-to-negative. It estimates the nominal GDP to grow 14.5 per cent in FY22, and believes a gradual pick-up in revenue collections could lead to an improvement in the capital expenditure from FY22. It noted that due to the economic downturn, even the union government finances are under pressure, leading to a lower-than-budgeted devolution of Rs 5.50 lakh crore to states in FY21 (revised estimate: RE) as against the budget estimate (BE) of Rs 8.03 lakh crore.

Ind-Ra said although it estimates the aggregate revenue receipt of the states to grow 8.4 per cent y-o-y in FY22 from a decline of 0.6 per cent in FY21 (f), the revenue deficit would persist in FY22. It expects the aggregate revenue deficit of states to come in at 1.5 per cent of GDP in FY22 as against FY21 (f) of 3.2 per cent. The pressure on the debt burden is likely to persist in FY22 due to a combination of revenue deficit, some pick-up in capex and repayment of past market borrowings.

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