The Hindu Business Line : State finances to suffer further strains: Crisil

Mumbai, Dec. 18 The revenue deficit and gross fiscal deficit of most State Governments are likely to start deteriorating from 2009, after showing improvement for four years, said a report released by rating agency Crisil.

According to the report the improvement in the fiscal profile of State Governments is reflected in 28 States reporting an aggregate revenue surplus of Rs 22,500 crore in 2007-08 from a deficit of Rs 63,400 crore deficit in 2003-04.

This is now set to change, as the growth in State Governments’ own taxes revenues, as well as in devolution of taxes from the Centre, is expected to slow down.

The adverse effect of lower revenue growth will be accentuated by higher development and non-development expenditure.

Poll factor

The general elections, and elections in some major States, will create pressure to increase populist expenditure, subsidies, and tax waivers and concessions, the report said.

The report quoted Ms Roopa Kudva, Managing Director and CEO, Crisil, as saying, “A shortfall of even 4 per cent in aggregate budgeted revenues for 2008-09 can wipe out the State Governments’ entire revenue surplus and push them back into revenue deficits. While the impact will begin to be felt in 2008-09, the full effect of these trends will manifest in 2009-10 and thereafter. Crisil expects that many States will borrow beyond the Fiscal Responsibility and Budget Management (FRBM) Act targets, resulting in higher debt levels.”

The report also said the improvement in State finances between 2003-04 and 2007-08 was underpinned by strong annualised growth in value added tax collections, State excise duty, stamp duty and registration charges and devolution of central taxes over this period.

All four are now expected to show lower growth, due to the slower economic growth, deceleration in consumption demand, decline in industrial growth and real estate slowdown.

However, expenditure will grow on account of higher establishment expenditure because of implementation of Pay Commission recommendations. Similarly, high levels of infrastructure spending will drive an increase in development expenditure, the report said.

More Stories on : Financial Markets | States | Credit Rating | Taxation

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page