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With conditional provisions to borrow more, States’ borrowing is estimated at ₹8.25 lakh crore, India Ratings & Research (Ind-Ra) said on Tuesday. This estimate is based on the budget projection of 20 large States, which account for nearly 86 per cent of total revenue projections of all States together.
The agency expects the aggregate fiscal deficit of States to now rise to 4.5 per cent of gross domestic product (GDP) in current fiscal as against earlier forecast of 3 per cent.
This whole estimation has factored additional fiscal space provided by the Centre by enhancing borrowing limits of States to 5 per cent from 3 per cent for current fiscal only. The States’ net borrowing ceiling for current fiscal is ₹6.41-lakh crore, based on 3 per cent of Gross State Domestic Product (GSDP) 75 per cent thereof was authorised to them in March itself and timing is left to the States. So far, States have borrowed only 14 per cent of the limit authorised. Still, as States made a request to enhance the limit, Centre agreed. This will give States extra resources of ₹4.28 lakh crore.
According to Ind-Ra, the pressure on State governments to provide support to households and businesses through fiscal stimulus measures is set to increase. Like many countries across the globe, India has been hit by the Covid-19 pandemic and it has come at a time when the country was already facing a broad-based economic slowdown, with revenues of both the Central and State governments under pressure.
The agency has evaluated the revised estimates (RE) for FY20 and FY21 budget estimates (BE) of 20 States. Since these States presented their budgets before the Covid-induced lockdown, the nominal GSDP growth projected for FY20 by respective State governments is mostly upwards of 10 per cent, which in agency’s opinion is aggressive and unlikely to be realised.
State governments were already faced with a lower-than-budgeted share in Central taxes and subdued own revenue growth, when the 21-day economic lockdown was imposed from March 25. States, in all likelihood, will face significant slippages from the FY21BE. The extent of slippage would vary depending on the pace at which economic activity limps back to life. Despite the relaxation in Covid-19 related restrictions in mid-May, the revenue balance of States in FY21 is set to worsen, particularly for those which already run sizeable revenue deficits.
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