The fiscal deficit of the states may be reduced to 4.3 percent in 2021-22, while it is expected to be 4.6 percent in 2020-21. India Ratings and Research said this in a report. The rating agency revised its outlook on state finances for 2021-22 to negative from stable.
“We estimate that the gross fiscal deficit of the states will be reduced to 4.3 percent in 2021-22 while it is expected to be 4.6 percent in 2020-21,” the agency said. India Ratings had earlier projected the fiscal deficit of states to be 4.5 percent in 2020-21. But it subsequently revised the fiscal deficit estimate to a larger than expected 6.1 percent drop in gross domestic product (GDP) at market price.
According to the rating agency, GDP will increase by 14.5 percent at market price in 2021-22. It estimates that a gradual increase in revenue collection will increase capital expenditure in 2021-22. The report said that due to economic slowdown, there is pressure on the finances of the central government. This will give the states Rs 5.50 lakh crore in central taxes according to the revised estimate for 2020-21, which is less than the budget estimate of Rs 8.03 lakh crore. According to India Ratings, the revised estimate is Rs 2.53 lakh crore less than the share of states’ central taxes in the budget. In the fiscal deficit estimate for the fiscal year 2020-21, it is about 92 percent of the increase in the budget estimate.