States’ Indebtedness To Remain Elevated At 30-31% Of GSDP: Crisil


The aggregate indebtedness of states, measured by debt to gross state domestic product, is expected to remain elevated at 30-31% this fiscal, almost similar to about 31.5% seen in FY22, according Crisil Ratings Ltd.

Sticky revenue expenditure and the need for higher capital outlays, along with modest revenue growth, will keep borrowings up this fiscal, Crisil said in Nov. 10 note. As such, the centre’s announcement last budget to provide special assistance of about Rs 1 lakh crore to all states for capital spending will provide some respite, it said.

“Overall revenue of states is expected to rise about 7-9% year-on-year in the current fiscal,” Anuj Sethi, senior director at Crisil Ratings, said. Strong state goods and services tax collections and healthy central tax devolutions will be the major drivers this fiscal as well.

“But flattish sales tax collections from fuel, modest growth in grants and discontinuation of GST compensation, after end-June 2022 in line with the GST (Compensation to States) Act, 2017, will moderate the growth,” he said.

On the other hand, revenue expenditure is set to rise by 11-12% on-year, similar to last fiscal. This will be driven by higher committed expenditure, essential developmental expenditure and rising subsidies to power sector, which together contribute to 85-90% of the total revenue expenditure.

Consequently, the revenue account of states will see a marginal weakening, to yield a revenue deficit of Rs 0.8 lakh crore or about 0.3% of GSDP this fiscal, according to estimates by Crisil. States will have to borrow to make up this shortfall. In addition, they will need to borrow to fund outlays on key infrastructure segments such as roads, irrigation and rural development.

While states had budgeted an ambitious about 40% year-on-year capital outlay growth to about Rs 6.4 lakh crore this fiscal, Crisil estimates capital outlay will rise about 15-17%, given the past track record. Nevertheless, assistance of Rs 1 lakh crore from the central government in the form of 50-year interest-free loans to states will help partially meet capital outlay target, it said. Moreover, this loan is not counted towards the borrowing limit of 3.5% of the GSDP for states this year.

Crisil’s study of the top 18 states, which account for 90% of the aggregate GSDP, shows that states borrow mainly to fund deficits on the revenue account and incur capital outlays. Indebtedness had risen to a decadal high of 34% in FY21, before cooling a tad to about 31.5% in FY22.

States analysed include Maharashtra, Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, Andhra Pradesh, Telangana, Rajasthan, West Bengal, Madhya Pradesh, Kerala, Haryana, Bihar, Punjab, Odisha, Chhattisgarh, Jharkhand and Goa.

States saw a small surplus on the revenue account in FY22, owing to a healthy revenue growth of about 25% year-on-year supported by healthy GST collections, strong devolutions from the central government, recovery in sales tax collections from fuel and support from central government through GST compensation loans, the note stated.


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