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Maharashtra’s fiscal deficit to shoot up to 2.71% of state GDP against budgeted 1.53%

On Sunday, Maharashtra chief minister Devendra Fadnavis has promised a farm loan waiver for small and marginal farmers of the state which could cost up to Rs 35,000 crore

By: ENS Economic Bureau | Mumbai |
June 13, 2017 2:39:08 am

Maharashtra government’s decision to go for a loan waiver for small and marginal farmers will push up states’ fiscal deficit to 2.71 per cent of gross state domestic product (GSDP) in fiscal 2018 as against the budgeted 1.53 per cent, rating agencies have said. They have warned that the loan waiver is likely to reduce the fiscal space for the government to undertake higher capital expenditure over the medium-term, thus affecting its medium-term growth prospects.

India Ratings has estimated that the debt/GSDP ratio will rise to 17.44 per cent against the budgeted 16.26 per cent in FY18. The impact however will depend on whether the entire loan waiver is absorbed in FY18 or is staggered over a period of three to four years. In order to manage the elevated debt levels, the state could reduce expenditure on capital formation, it said. On Sunday, Maharashtra chief minister Devendra Fadnavis has promised a farm loan waiver for small and marginal farmers of the state which could cost up to Rs 35,000 crore.

India Ratings said the pressure on Maharashtra’s fiscal position would be less intensive if the debt waiver is absorbed in the state finances in a staggered manner. The fiscal deficit would increase by 29.5 bps to 1.82 per cent of GSDP in FY18 if the loan waiver is phased equally (Rs 7,500 crore) over a four-year period. In this scenario, the fiscal deficit/GSDP is estimated to increase by 22-27 bps over FY19-FY21. However, despite fiscal deficit expansion, it is likely to remain within the 14th Finance Commission’s prescribed limit of 3 per cent of GSDP.

It has estimated debt/GSDP to increase to 17.44 per cent in FY18 (with entire waived amount absorbed in FY18) as against the budgeted 16.26 per cent. The state has budgeted debt stock at Rs 4,12,992 crore for FY18. With the loan waiver, this will rise to Rs 4,42,992 crore. The elevated debt levels will raise concern that the state could reduce expenditure on capital formation. “The share of capital expenditure in total expenditure averaged 16.6 per cent during FY10-FY17 (revised estimate). Deficits in the revenue account persisted during this period due to large interest payments,” it said.

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Interest payment (Rs 34,127 crore) to revenue expenditure ratio is budgeted at 13.75 per cent for FY18. The state government has budgeted capex at 15.21 per cent of total expenditure in FY18.This is the second farm waiver announced by a state this year after Uttar Pradesh and farmers in states like Madhya Pradesh, Punjab and Tamil Nadu are also demanding similar waivers.

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First published on: 13-06-2017 at 02:39:08 am

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