The farm debt waivers announced by the five large states together will widen the combined fiscal deficit of the states by Rs 1,07,700 crore or 0.65 per cent of GDP this financial year, warns a report. The combined fiscal deficit of the states for FY18 has been budgeted at 2.7 per cent of GDP or Rs 4.48 trillion.
Uttar Pradesh, Punjab, Maharashtra, Rajasthan and Karnataka have announced farm loan waivers this year after a string of farmer suicides in these states. Nine states have budgeted an increase in their fiscal deficits/gross state domestic product (GSDP) ratios this year compared to 19 states in FY17.
“With several states announcing farm loan waivers, there is a fear that the combined fiscal deficits of the states could be much worse than the budgeted figure,” India Ratings said in a report today. The report estimates that the combined fiscal deficit of the states in FY18 at 3 per cent of GDP or Rs 4.99 trillion. This is higher than the budgeted figure but considerably lower than FY17.
The report is based on the analysis of 29 state budgets, the impact of the farm debt waivers announced outside the budgets and implementation of GST from July 2017. While the farm debt waivers announced by UP and Punjab are part of their respective FY18 budgets, the waivers announced by Maharashtra, Rajasthan and Karnataka are outside their budgets.
“These states will have to either generate additional resources to fund farm debt waivers or cut their budgeted expenditure,” the report said. If such announcements are funded through expenditure compression, the axe usually falls first on the budgeted capital expenditure, followed by social expenditure, the report said.
“Both cuts do not augur well from the point of view of the medium to long term growth prospects of these states,” the report said. Andhra Pradesh and Telangana, which announced a farm debt waivers of Rs 43,000 crore and Rs 17,000 crore, respectively, in 2014, however have adopted a staggered payment mechanism.
The report, however, said despite fiscal pressures, the encouraging feature of FY18 state budgets is near stability in the combined revenue deficit and some improvements in the combined primary deficit of the states compared to FY17.
The other encouraging feature of the state budgets this year has been the continuation of capex by the states. Boosted by Uday bond issuances, combined capex of the states grew 40 per cent year-on-year and 26.2 per cent in FY16 and FY17, espectively.
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