ICRA report predicts a rise in revenue expenditure led by the funding of crop loan waivers, election-related spending and flood relief etc that may lead to fiscal slippages in some states
Mumbai: Funding of farm loan waivers, poll-related spending and other populist measures are likely to ensure that states are set to miss their fiscal consolidation targets budgeted at the beginning of the year, says a report.
"Given the factors such as funding of crop loan waivers, election-related spending and the flood relief will see the states miss their fiscal consolidation targets," ICRA said in a weekend note. The states' fiscal deficit is primarily financed by issuing state development loans (SDLs). In April-August of FY19, gross issuance of SDL contracted by 3.4 per cent to Rs 1.32 trillion, primarily led by a sharp decline in issuance by UP, Maharashtra and Gujarat.
However, excluding these three states, total SDL issuance by the remaining states has grown 14.7 per cent in the first five months of FY19. ICRA also estimates that Rs 1.3 trillion of SDLs are scheduled to be redeemed in FY19, much higher than Rs 0.8 trillion redeemed in FY18.
"Given the sharp rise in the redemption amount, and assuming an annual growth of 10-20 per cent over the net SDL issuance of Rs 3.4 trillion in FY18, gross SDL issuance may rise to Rs 5-5.3 trillion in FY19 from Rs 4.2 trillion in FY18," says the report.
Recently, the Reserve Bank estimated that fiscal deficits of all the 29 states may decline to 2.6 per cent of their gross state domestic product (GSDP) citing their FY19 budget estimates, from 3.1 per cent in FY18.
But an analysis of the FY19 budgets of nine states, accounting for around 62 per cent of the combined GSDP of all 29 states in FY17, shows that their fiscal deficits are budgeted to slip to 2.5 per cent of GSDP in FY19 from 2.6 per cent in FY18.
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