Fiscal deficit of 18 States at 40.7% in Q1

New Delhi: Steeply falling revenues and central grants amidst rising expenditure to fight the coronavirus pandemic led to 18 of the largest states reporting a collective revenue deficit of 285 per cent of Budget Estimates in April-June as against 12.9 per cent a year ago, as per a report by India Ratings (Ind-Ra).

The collective fiscal deficit of the 18 states stood at 40.7 per cent of Budget Estimates (BE) in Q1 as against 13.4 per cent a year ago, the report said.

The pandemic-induced lockdowns, resultant loss of business and fall in tax collections have forced states to borrow at almost 10 per cent. While their revenues have plunged, expenses have only gone up. The Centre's refusal to pay GST dues on time further aggravated the pain of the states. The collective revenue expenditure of the 18 states grew 11.7 per cent in Q1, the report said.

Revenue expenditure showed significant variations across states. Although it rose significantly for majority of the states, a few of them like Chhattisgarh, Jharkhand, Odisha, UP and Gujarat could compress it, the report added.

Collectively, the 18 states reduced their expenditure on salary and pension by 10.5 per cent and on subsidies by 39.9 per cent, but expenditure on public health/administrative measures pushed 'other expenditure' higher by 40.1 per cent.

All these led to combined revenue deficit rising to a massive 285 per cent in Q1 as against 12.9 per cent a year ago and fiscal deficit at 40.7 per cent of BE as against 13.4 per cent a year ago, Ind-Ra said.

The collective capex of the 18 states was down by 41.9 per cent in the quarter. Among the major states, Andhra Pradesh, Himachal Pradesh and Kerala maintained capex growth even amid the pandemic, it added.

States have been under significant stress both on revenue and expenditure sides. However, they sparingly availed of the Reserve Bank's special liquidity windows (special drawing facility/ways and means advances/overdraft) to tide over the fiscal crisis, the report said.

The states relied on expenditure compression, devolution from the Centre and higher market borrowings to remain fiscally afloat, it added.