Indian States Keep Spending Taps On While Eyeing Fiscal Consolidation
Cyclists and motorists travel along a near a gate to the Imambara Husainabad in Lucknow, Uttar Pradesh, India, on Monday, Dec. 30, 2019. (Photographer: Prashanth Vishwanathan/Bloomberg)

Indian States Keep Spending Taps On While Eyeing Fiscal Consolidation

Indian states that have presented budgets for 2021-22 so far have followed the central government, attempting to bring down their fiscal deficits next year after the Covid-19 crisis led to a surge in budget gaps.

The fiscal deficit for FY21 varied widely across states, with some reporting a gap as high as 6% of gross state domestic product, while others managed to contain their deficits at under 4%. For next year, most are targeting some degree of fiscal consolidation, with some of it coming at the expense of expenditure cuts.

BloombergQuint has compiled key highlights from the budget presentations of states where documents are available online. For the 13 states where budgets have been presented, the average fiscal deficit settled at 4.5% in FY21, said SBI Economic Research in a report on Wednesday.

Our comprehensive analysis of finances of 13 states shows that the average fiscal deficit is 4.5% for FY21. For FY22, states have budgeted average fiscal deficit of 3.3%. The consolidated fiscal deficit of the Centre and States is thus likely to be around 12.7% of GDP, assuming that the Centre’s fiscal deficit is likely to be undershot from 9.5% to 8.7% of GDP in current fiscal.
Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI

Maharashtra: Push For Capex

  • Fiscal deficit for FY22 is targeted at 2.24% of the GSDP compared with a revised estimate of 3.29%, according to revised estimates for FY21. In Maharashtra, which saw the highest number of Covid-19 cases, gross state domestic product is estimated to grow 12%, as per the budget estimates, compared with the revised estimates for FY21, when GDP contracted 5.6% from the previous year.
  • Expenditure is budgeted to rise 15.4% in FY22 over the revised estimates of the previous financial year compared with a growth of 12.1% in FY21. Capital expenditure in the state is expected to grow 34%, after a growth of 14.2% this year.
  • Receipts are estimated to rise 15.5% in FY22 after an increase of 11.1% in the current financial year.

Gujarat: Revert To Norm

  • Gujarat’s fiscal deficit settled at 3.1% of GSDP in FY21, as per India Ratings & Research. The state hopes to compress this to 1.6% in FY22.
  • Total expenditure is estimated to grow 16.4% in FY22, as per budget estimates over FY21 revised estimates, compared with a rise of 4% in the ongoing fiscal over the previous year. Capex in Gujarat is set to spike by 50.3% as per budget estimates, over revised estimate for FY21.
  • Total receipts are estimated to grow 13% in FY22, as per budget estimates over FY21 revised estimates, compared with a year-on-year rise of 3.6% in the ongoing financial year.

Uttar Pradesh: Fiscal Deficit To Remain High

  • Uttar Pradesh is not projected to see any fiscal consolidation, with fiscal deficit estimated at 4.17%, the same as the revised estimate for the current financial year.
  • Expenditure is estimated to see a sharp increase of 32.6% in FY22, after a growth of 8.2% in FY21 as per revised estimates. Capital expenditure by the state is estimated to rise 63.7% in FY22, after it grew 12.1% in FY21.
  • Receipts are estimated to grow 26.4% in FY22, as per budget estimates, over revised estimates for FY21. In the soon-to-conclude financial year, receipts contracted 10.2% over actuals for the previous year.

Bihar: Frontloaded Spending

  • Bihar’s fiscal deficit settled at 6.77% of GSDP in FY21. The state hopes to compress this to 2.97% in FY22.
  • Total expenditure is estimated to contract 3.2% in FY22, as per budget estimates over FY21 revised estimates, compared with a rise of 57% in the soon-to-conclude fiscal over the previous year.
  • Capital expenditure by the state is estimated to contract 10.4% in FY22, after it saw a spike of 129.2% in FY21. As a share of total expenditure, capital expenditure will drop to 18.9% compared to 20.4% in FY21, but it will remain higher than the share of capital expenditure in preceding years.
  • Total receipts are estimated to grow 2.9% in FY22, as per budget estimates over FY21 revised estimates, compared to a rise of 38.4% in the ongoing financial year.

Karnataka: A Wider Deficit?

  • Karnataka’s fiscal deficit is estimated at 3.2% of the GSDP in FY21, but is projected to rise to 3.5% in FY22.
  • Total expenditure is estimated to grow 6.1% in FY22, as per budget estimates over revised estimates for FY21. This is compared to a growth of 2.1% in FY21, as per revised estimates on an annual basis. Capital expenditure by the state is estimated to grow 11.3% in FY22, after it saw a rise of 4.6% in FY21.
  • Receipts are budgeted to rise 7.8% in FY22 compared to a revised estimate in FY21. Receipts shrank 8.9% in the ongoing financial year.

Kerala: Spending Continues

  • Fiscal deficit for FY21 is estimated at 4.25% of the GSDP, as per budget estimates, compared to a revised estimate of 4.25%, according to revised estimates for FY21.
  • Expenditure is budgeted to rise 24.2% in FY22, compared to a rise of 12.2% in the revised estimates of the previous year. Total expenditure on the capital account in the state is expected to grow 27.8%, as per budget estimates, after a growth of 14.4% this year, as per revised estimates.
  • Receipts, too, are projected to rise 24.2% in FY22 over revised estimates for FY21. In the ongoing financial year, receipts rose 12.2% compared to actual receipts in FY20.

Madhya Pradesh: Capex To Dominate

  • Fiscal deficit for FY22 is targeted at 4.5% compared to a revised estimate of 5.7%, according to revised estimates for FY21.
  • Expenditure is budgeted to rise 14.6% in FY22 over revised estimates, compared to a growth of 4.9% in the previous year. Capital expenditure in the state is expected to grow 42.6%, after an increase of 2.4% this year.
  • Receipts are estimated to rise 13.8% in FY22 compared to revised estimates for FY21, after a rise of 5.6% in FY21.

Rajasthan: Expenditure To Stay Flat

  • Fiscal deficit for FY22 is targeted at 3.98% of the gross state domestic product, compared to a revised estimate of 6.1% for FY21.
  • Expenditure is budgeted to rise 1.1% in FY22, lower than growth of 16.2% as per the revised estimated of the previous year. Capital expenditure in the state is expected to contract by 26.9%, after a growth of 57.7% this year.
  • Receipts, too, are estimated to rise 1.1% in FY22, after a rise of 16.2% in the current financial year.

West Bengal: All About Capex

  • Fiscal deficit for FY22 is targeted at 2.94% of the gross state domestic product, compared to a revised estimate of 3.86% for FY21.
  • Expenditure is budgeted to rise 25% in FY22, after it increased by 5.6% as per the revised estimated of the previous year. Capital expenditure in the state is expected to spike by 74.5%, after a contraction of 12.7% this year.
  • Receipts, too, are estimated to rise 25% in FY22, after a rise of 5.6% in the current financial year.

Gross State Domestic Product Growth

Ghosh of SBI Economic Research pointed to differences in the growth projected at the state level in budget presentations and the implied growth given the overall path of the national economy.

The National Statistical Office has estimated a 8.0% contraction in real terms and 3.8% contraction in nominal terms for FY21. For FY22, the Union Budget projected nominal growth of 14.4%.

To understand better the states’ nominal GSDP estimates for FY21, SBI Economic Research estimated the state nominal GSDP based on the basis of the historical share of each states in India’s GDP.

“For some states we find a difference between the state estimates and revised estimates provided by these states for FY21, in their recently released budgets. The prominent states where there is difference between share estimates and budgeted GSDP: West Bengal, Uttar Pradesh, Madhya Pradesh and Karnataka,” Ghosh wrote. Second, if we purely look at the budgeted GSDP estimates of states, then the all-India GDP contraction would be perhaps much lesser than what the NSO has projected, he added.

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