India Ratings and Research (Ind-Ra) has maintained a stable outlook on the finances of Indian states for FY19. Ind-Ra expects the aggregate fiscal deficit of the states to moderate to 2.8% of GDP in FY19, 20bp higher than the budgeted aggregate fiscal deficit/GDP of 2.6%. In addition, the agency expects the states to achieve a zero revenue balance to GDP ratio in FY19. However, the likely improvement in deficit ratios is vulnerable to disproportionate revenue expenditure due to populist measures in the run-up to state and general elections in mid-2019.
Ind-Ra estimates the states' aggregate revenue receipt to grow 13.9% yoy in FY19. The estimate is marginally higher than the earlier forecast of 13.7%. Ind-Ra believes that revenue from the goods and services tax would support tax revenue collection of the states in FY19. It expects the states' aggregate tax revenue (including devolutions from the central government) to grow 16.0% yoy in FY19.
On the expenditure side, Ind-Ra expects growth in revenue expenditure to moderate to 11.2% in FY19 from 20.7% in FY18(revised estimate (RE)), as salary revisions of state government employees and outgo related to farm loan waivers were absorbed, to some extent, in FY18. Ind-Ra expects the interest payment/revenue receipt ratio to marginally moderate to 11.3% in FY19 from 11.9% in FY18(RE) in view of a likely higher growth in revenue receipts. However, the agency expects the ratios of states such as Haryana, Tamil Nadu, Punjab, Uttarakhand, Kerala and West Bengal to remain in the high range of 14.0%-22.0% in FY19.
Ind-Ra has downwardly revised the aggregate debt/GDP estimate to 24.4% for FY19 from its earlier estimate of 25.8%. The states have budgeted debt/GDP at 24.3% for FY19, marginally higher than 24.0% in FY18(RE). The agency believes increased borrowings will largely be used to fund capex. The states have budgeted gross market borrowings at Rs 4,407.2 billion in aggregate for FY19. Ind-Ra estimates the gross market borrowings to be higher than the states' at Rs 4,652.8 million in FY19. The states' aggregate market borrowings increased to Rs 1.1 trillion during April-July 2018 from Rs 982 billion over April-July 2017.
