States' debt to remain elevated at 31-32% of GDP this fiscal: Crisil Ratings

04 Dec 2023 Evaluate

Crisil Ratings in its report has said that states' debt will remain elevated at 31-32 per cent of their gross domestic product (GDP) amid higher capital outlays and moderate revenue growth this fiscal, with overall borrowings likely to rise by 9 per cent to over Rs 87 lakh crore. Indebtedness of a state is measured as the ratio of its debt to gross state domestic product (GSDP). Before Covid, the debt-GSDP ratio was at 28-29. But the aggregate gross fiscal deficit (GFD) as a ratio of GSDP is expected to remain at 2.5, well below the mandated level of 3 under the Fiscal Responsibility and Budget Management Act.

With lower-than-expected revenue growth, states are forced to borrow more to expand capital outlays, besides meeting high committed revenue expenditure related to salaries, pensions and interest costs. This, along with modest single-digit revenue growth, will keep the debt level high at 31-32 per cent of their gross domestic output. The report is based on the numbers available from the top 18 states (Maharashtra, Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, Telangana, Rajasthan, Bengal, Madhya Pradesh, Andhra Pradesh, Kerala, Odisha, Punjab, Bihar, Chhattisgarh, Haryana, Jharkhand and Goa), accounting for 90 per cent of the aggregate GSDP.

After a small revenue surplus in fiscal 2022, the states have slipped into deficit in fiscal 2023, as overall revenue grew at a modest 8 per cent while revenue expenditure rose faster at 11 per cent on-year. This fiscal, overall revenue is expected to rise only 6-8 per cent, supported by goods and services tax collections, devolutions from the Centre, and taxes and duties on liquor. On the other hand, revenue expenditure is set to increase 8-10 per cent, driven by higher committed expenditure, and increasing social welfare and public health related expenses which combined come in around 65 per cent of the total revenue expenditure of the states.