India Ratings estimates fiscal deficit of states to touch 3% of GDP

India Ratings has estimated that the aggregate fiscal deficit of states would touch 3 per cent of the gross domestic product (GDP) in the current fiscal year, against 2.6 pegged in the Budget Estimates. The deficit had stood at 2.9 per cent in FY19.

This fiscal slippage will originate from a decline in tax revenue, a lower nominal GDP and higher expenditure, it said. In aggregate, states have budgeted total revenues to grow by 10.2 per cent to Rs 30.97 trillion in FY20, India Ratings Chief Economist Devendra Pant said. Tax revenue growth was assumed to grow 11.5 per cent to Rs 22.15 trillion in the year.

States’ tax collections fall under three different revenue heads — states’ own tax revenue (SOTR); share in central taxes and grants.

SOTR remains the dominant contributor to the state revenues with 44.0 per cent share in the total budgeted revenue in FY20, followed by states’ share in central taxes at 27.5 per cent.

State GST is part of SOTR. Under the GST regime, states are assured of at least 14 per cent annual growth in SGST collections and entitled for compensation from the Centre, if their SGST collections growth is less than this on the base year of 2015-16.

Twelve states have not budgeted for compensation cess from the Centre in FY20. However, they may witness lower SGST collection than budgeted due to slowdown.