The gross fiscal deficit of states, which shot up to Rs 4,93,360 crore in the financial year 2015-16 from Rs 18,790 crore in the financial year 1990-91, is expected to decline to Rs 4,49,520 crore (Budget Estimate) in 2016-17, says the Reserve Bank of India (RBI).
According to the second edition of the RBI’s statistical publication titled ‘Handbook of Statistics on States 2016-17’, which was released on Saturday, Uttar Pradesh had a fiscal deficit of Rs 3,070 crore in FY91, which zoomed to Rs 64,320 crore in FY16 and but its deficit is projected to improve to Rs 49,960 crore in 2016-17. Rajasthan’s fiscal deficit soared from Rs 540 crore to Rs 67,350 crore, but the RBI has projected it to decline to Rs 40,150 crore.
However, the RBI estimate has not taken into account farm loan waivers announced by various state governments like Uttar Pradesh, Maharashtra and Punjab. Funding of crop loan waivers is likely to worsen the fiscal deficit and leverage levels of state governments with gross state development loans issued by the state governments expected to rise by Rs 70,000 crore in FY2018.
Jayanta Roy, group head, corporate sector rating, ICRA, said: “Even without factoring in the amount needed to fund the crop loan waivers that some states have announced, ICRA estimates the gross state development loans issued by the state governments to rise from Rs 3,80,000 crore in FY2017 to Rs 4,50,000 crore in FY2018.”
“Debt waivers would engender an additional burden on the respective states’ fiscal balances, necessitating further debt raising beyond our baseline estimate of Rs 4,50,000 crore for FY18. This would increase the yields at which state governments raise market borrowings, widen the spread relative to G-sec and also contribute to crowding out the private sector from accessing the bond markets at competitive rates. The spread between SDL and G-sec yields could rise to above 100 bps (basis points) during H2 FY18, from around 70 bps at present,” Roy said.
Uttar Pradesh, Maharashtra, Punjab and Karnataka have announced crop loan waivers in recent months. The final operational details of some of these schemes are awaited, including the size, number of years over which the waiver would be staggered, and manner in which the respective state government would raise debt to fund the waiver.
The central bank says Maharashtra, the most industrialised state, had a fiscal deficit of Rs 1,020 crore in 1990-91
but the same jumped to Rs 37,950 crore in 2015-16.
The deficit is now expected to decline to Rs 35,030 crore in 2016-17.
However, Gujarat, which had a deficit of Rs 22,170 crore in FY16, is expected to see the deficit further widen in FY17 to Rs 24,610 crore. Another state projected to have a higher deficit is Andhra Pradesh at Rs 20,500 crore in 2016-17, from Rs 17,000 crore in FY16 and Rs 970 crore in FY91. Similarly, Tamil Nadu is also projected to have a higher deficit at Rs 40,530 crore in 2016-17, up from Rs 32,320 crore a year ago.
According to the Reserve Bank of India, Karnataka, which had good finances in the past, is also estimated to post a higher deficit in FY17 at Rs 25,660 crore, up from Rs 20,560 a year ago. Kerala is also slated to have a higher deficit at Rs 23,140 crore in FY17 from Rs 17,720 crore in FY16. Bihar is slated to improve its finances with fiscal deficit of Rs 16,010 crore in FY17 against Rs 28,510 crore in FY16.
West Bengal has been improving its finances with its fiscal deficit projected to improve to Rs 19,360 crore in FY17 from Rs 25,180 crore a year ago, says the central bank data.