MUMBAI, JANUARY 6: The Credit Rating Information Services of India (Crisil) today hinted at the possibility of revision in ratings of state governments following systematic deterioration in their credit profile and significant downturn in their finances over the past two years.In a statement, Crisil attributed sagging state finances to the inadequate cost of services provided by the states, under-exploitation of tax potential and a continuous rise in expenditure.``The inability of states to evolve alternate means of debt funding may lead to acute liquidity problems and may even trigger defaults by some of the state governments and their subsidiaries,'' the agency cautioned.It pointed out that upward revision in the pay scales of state government employees led to a recurring annual impact of six to 15 per cent of state government's revenue receipts.Also, some states were required to incur additional expenditure of as much as 30 per cent of their receipts towards one time settlement of their arrears.Contingent liabilities of states, which had grown at a high rate of 12 per cent per annum as on September 1998 and reached a level of Rs 80,000 crore, has been largely due to increased requirements of internal and extra budgetary resources to fund plan expenditure and large funding needs of infrastructure projects.In the long-term, Crisil is expecting the sustenance of finances of only those states which exercise high level of fiscal prudence and achieve economic development through attracting investments in industry and infrastructure with a progressive economic policy. ``Any populist measure like free power for agriculture, on the other hand, will accelerate the process of fiscal decline,'' Crisil said.
