State debt will remain high in FY23 despite fiscal consolidation: report
NEW DELHI: Capex plans could raise the budget deficit of 20 states to 3.36% of their respective gross domestic product (GSDP) from 3.31% of the budgeted GSDP ( ₹7.08 trillion) in FY23, India Ratings and Research said on Friday.
According to the estimate, despite the increase, the states budget deficit will remain well within the limits prescribed by the 15th Finance Committee and agreed by the Union Government – 4% of GSDP and an additional 0.5% of GSDP under subject to conditions.
Himachal Pradesh, Madhya Pradesh, Meghalaya, Rajasthan and Telangana have budgeted their respective fiscal deficits at or above 4% of GDP.
So far, 20 states accounting for 80.32% of India’s real GDP according to National Statistical Organization FY20 data have submitted their FY23 budget proposals. Although different states assumed different nominal GSDs for their FY23 budget estimate, the average combined nominal GSDP growth for 20 states is 11.75% (FY22RE: 13.58%; FY21: 2.48%; FY20: 9.48%). The assumed GDPP growth seems achievable.
India Ratings and Research (Ind-Ra) assumed nominal GSDP growth rates in the range of 9% to 15% for the 20 states. On this basis, the imputed nominal GSDP growth of these 20 states in FY23 is estimated at 11.55%. Ind-Ra expects India’s nominal GDP growth of 13.2% to 13.6% in FY23.
Ind-Ra also estimates that the aggregate revenue account for the 20 states runs a deficit of 1% of the GSDP. This figure is higher than the budgeted 0.8% of GDPP ( ₹1.7 trillion).
Although 10 states have projected their revenue account to be in surplus in FY23, the Ind-Ra expects eight of the 20 to record a surplus in their revenue account in FY23. .
The overall debt-to-GSDP ratio for the 20 states is budgeted at 27.23% for FY23 (FY22RE: 26.53%), well above the debt-to-GSDP average of 25.5% in the fiscal year 2018-21. According to Ind-Ra estimates, it should be 27.32% in FY23.
Of the 19 states, excluding Assam due to unavailability of FY22RE data, for which FY22RE and FY23BE data were available, Chhattisgarh, Gujarat, Haryana, Jharkhand, Mizoram and West Bengal have budgeted a moderation in their debt/GSDP levels for FY23BE compared to FY22RE.
With an upward shift in the path of interest rates and record central and state government borrowing, government interest charges are expected to peak in FY23. net 20-state market is budgeted at an all-time high ₹5.72 trillion in FY23, up 13.59% year on year, led by states such as Maharashtra, Madhya Pradesh, Telangana and West Bengal. Assam, Haryana and Rajasthan forecast lower net borrowing for FY23.
The record fresh market borrowing would fund more than four-fifths of the states’ required combined budget deficits in FY23. 22RE by net borrowings on the market. Gross market borrowings in FY23 are estimated at ₹7.69 trillion, an increase of 15.64% over FY22RE. In addition, the Union government projected its net borrowing from the market at an all-time high ₹11.18 trillion for FY23.