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  3. States' indebtedness to remain high at 33% in FY22: Crisil

States' indebtedness to remain high at 33% in FY22: Crisil

29 Sep 2021 Evaluate

Rating agency Crisil in its latest report has said that states' indebtedness will remain high this fiscal at 33 per cent, which is only a notch below the record high of 34 per cent of their gross domestic products (GDP) in FY21, as tax buoyancy will be offset by higher revenue expenditure and capital outlays. It said stated differently, overall debt of the states, including guarantees, is likely to increase by Rs 7.2 lakh crore this fiscal to Rs 71.4 lakh crore, which is 33 per cent of their combined GSDP. It added that this math will not hold if there is a third wave or if the revenue does not clip at least 15 per cent.

According to the report, the debt-to-GSDP ratio had risen to a decadal high of 34 per cent last fiscal after the first wave caught everyone by complete surprise. And that the sticky and elevated revenue expenditure and the need for higher capital outlay will keep borrowings up this fiscal. However, it said GST compensation of Rs 1.4 lakh crore as against Rs 0.9 lakh crore last year will provide some respite, which is based on the data of the top 18 states, which account for 90 per cent of the aggregate GSDP.

The report further stated that as the economy recovers, two major components of revenue -- GST and sales tax on petroleum products and liquor that comprises 30 per cent of total tax mop-up -- is likely to rebound strongly. It noted that GST could grow 20 per cent supported by higher inflation and better compliance levels, while the sales tax is seen clipping at 25 per cent, given the volume recovery and higher crude prices. However, it said revenue expenditure is likely to jump 10-11 per cent, negating the tax gains. As much as 75-80 per cent of the revenue expenditure of the states go towards salaries, pensions, interest costs, and essential developmental expenditure like grants-in-aid, medical and labour welfare-related expenses. 

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