Fiscal Deficit Of States To Moderate To 4.3% Of GDP In Next Financial Year: Report

The aggregate fiscal deficit of states for the next financial year to come in at 4.3 per cent of the gross domestic product (GDP), compared to 4.6 per cent (revised) in the current fiscal, according to India Rating and Research (Ind-Ra). The rating agency's earlier forecast for the current financial year was 4.5 per cent. The revision was made due to a sharper-than-expected contraction of 6.1 per cent year-on-year in the nominal GDP. The agency estimates the nominal GDP to grow 14.5 per cent in the next fiscal year and also that a gradual pick-up in revenue collections could lead to an improvement in the capital expenditure or capex from the financial year 2021-22. (Also Read: GDP To Bounce Back To 10.4% Next Fiscal Year By Base Effect: Rating Agency )

According to Ind-Ra, the share of capex in the total expenditure is likely to be higher at 15.5 per cent in next fiscal - at 2.9 per cent of GDP than 10.5 per cent in current fiscal - 2.1 per cent of GDP. The burden of the fiscal adjustment brought on by the COVID-19 pandemic was met by the states through a sharp reduction in capex during the current financial year. 

Meanwhile, the agency also estimated that the economic growth will bounce back to 10.4 per cent year on year (y-o-y) in the next fiscal year, driven majorly by the base effect. The growth is also likely to turn positive at 0.3 per cent year-on-year in the fourth quarter of the financial year.