The aggregate fiscal deficit of the states that have put forth their FY23 budget proposals so far is likely to marginally exceed what’s budgeted on account of higher capital expenditure, according to India Ratings & Research.
The gap between income and expenses for 20 states—representing 80.32% of India’s real GDP—is seen to come in at 3.36% of the gross state domestic product in the ongoing fiscal compared with the budgeted 3.31%, the ratings agency said in a report.
“Nonetheless, the fiscal deficit will remain comfortably within the limits prescribed by the 15th Finance Commission and agreed upon by the union government (4% of GSDP and additional 0.5% subject to conditions).”
Himachal Pradesh, Madhya Pradesh, Meghalaya, Rajasthan and Telangana, according to the report, have budgeted their respective fiscal deficit at higher than or equal to 4% of GSDP.
The aggregate debt-to-GSDP ratio for the 20 states is budgeted at 27.23% for FY23 compared with 25.5% during FY18-FY21 and the FY22 revised estimate of 26.53%. That, the ratings agency said, was in line with its projections for the current fiscal and remains within the 31.3% recommended by the 15th Finance Commission.
India Ratings also estimates the aggregate revenue account of the 20 states to be in a deficit of 1% of GSDP against the budgeted 0.8%.
With an upward turn in the trajectory of interest rates and record borrowings by both union and state governments, the interest costs of government are set to see a spike in FY23, the report said. The aggregate net market borrowings of the 20 states is budgeted at a Rs 5.72 lakh crore in FY23, up 13.59% over the year earlier, led by states such as Maharashtra, Madhya Pradesh, Telangana and West Bengal, it said.
Assam, Haryana and Rajasthan have projected lower net borrowings for FY23. “The record fresh market borrowing would finance more than four-fifths of the required combined fiscal deficits of the states in FY23.” The states in consideration financed on an average 78.09% of their combined fiscal deficits during FY18-FY22RE through net market borrowings, it said.
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