Research and rating organisation, India Ratings and Research (Ind-Ra) on Monday revised the outlook on the finances of Indian states to neutral for FY24 from improving.

Share Market Live

NSE

According to the agency, the revision was made due to the better-than-expected growth in revenue receipts. The agency expects the aggregate fiscal deficit of states for FY24 to come in at 3 percent of the gross domestic product compared to 2.9 percent in FY23.

The agency’s earlier forecast for FY23 was 3.6 percent. Ind-Ra also estimates the gross market borrowings by states would stand at Rs 8 trillion in FY24. The net market borrowings are projected at Rs 5.1 trillion for FY24.

Ind-Ra also expects aggregate revenue receipts to grow 13.6 percent year-on-year in FY23, higher than its previous estimate of 7.5 percent year-on-year. This number is supported by the buoyancy in states’ own tax revenue.

Also Read: Shriram Finance increases share in 2-wheeler financing to meet demand revival

Ind-Ra's estimate of nominal GDP growth for FY24 is 9.7 percent year-on-year. Ind-Ra expects the revenue momentum observed in FY23 to hold up in FY24. The states’ aggregate revenue deficit is projected to remain unchanged at 0.4 percent of GDP in FY24.

The agency expects the quality of the fiscal deficit, which is measured as revenue deficit as a percentage of fiscal deficit, to remain consistent at close to 14 percent in FY24. The agency said the debt burden on states will remain stable in FY24.

In line with the stable fiscal deficit/GDP in FY24, Ind-Ra expects the aggregate debt/GDP ratio to come in at 28 percent in FY24, closer to FY23 at 27.6 percent. This number is lower than Ind-Ra’s earlier estimate of 29.5 percent for FY23. These numbers are in keeping with the debt burden trajectory recommended by the 15 Finance Commission for the FY22-FY26 award period.

The recommendations of the 15th Finance Commission allowed states a fiscal deficit of 4 percent of GSDP in FY23, of which 0.5 percent was tied to power sector reforms.

Also Read: Muthoot Finance announces dividend of Rs 22 per share, stock gains for seventh day in a row

Ind-Ra expects the share of combined capex to improve marginally to 2.8 percent of GDP in FY24 from 2.5 percent in FY23, based on the states’ historical track record of undertaking less-than-budgeted capital spending and also on the underutilisation of fiscal space available in FY23.

Ind-Ra’s assessment of the provisional data for 26 states from the Comptroller and Auditor General showed 26 states in aggregate have achieved 52 percent of the FY23 budgeted capex during April-January FY23.

Only a handful of states such as Kerala, Karnataka, Gujarat, Himachal Pradesh, Madhya Pradesh, Bihar, and Odisha have incurred capex in the range of 60 percent to 74 percent of FY23 budgeted estimate (BE) during April-January FY23, according to Ind-Ra’s assessment.

Also Read: Finance Ministry sets up panel to review pension system for government employees

The states have borrowed considerably less than the budgeted gross market borrowings of around Rs 9 trillion for FY23. This indicates the states combined have not utilised the additional fiscal space available for capex. ​