March 1, 2024

Lukmaan IAS

A Blog for IAS Examination

STATES’ DEBT PROJECTION AND FISCAL SITUATION

image_printPrint

TAG: GS 3: ECONOMY

THE CONTEXT: Amid higher capital expenditure and moderate revenue growth this fiscal year, state’s debt will remain higher at 31-32 per cent of their gross domestic product.

EXPLANATION:

  • As per the Crisil rating report, the current situation is likely to take overall borrowings to ₹87 lakh crore, up 9 per cent this year.

DEBT PROJECTIONS AND STATE FISCAL HEALTH

  • Debt- gross state domestic product (GSDP) Ratio:
    • Indebtedness of a state is measured as the ratio of its debt to gross state domestic product (GSDP).
    • States’ debt projected at 31-32% of Gross Domestic Product (GDP) in FY24.
    • Increase from pre-pandemic levels of 28-29%.
  • Fiscal Responsibility and Budget Management Act:

FACTORS INFLUENCING HIGH DEBT LEVELS

  • Revenue Growth Challenges:
    • States anticipate modest revenue growth, hindering fiscal stability.
  • Capital Expenditure (Capex) and Borrowing:
    • Increased borrowing due to higher capital outlays.
    • Committed expenditure on salaries, pensions, and interest adds to borrowing pressure.
  • Expenditure Structure:
    • Majority of revenue allocated to committed expenditure, limiting fiscal flexibility.

IMPACT OF REVENUE AND EXPENDITURE PROJECTIONS

  • Expected Revenue Growth:
    • Predicted 6-8% growth, supported by GST collections and Center’s devolutions.
  • Rising Expenditure:
    • Anticipated 8-10% rise in revenue expenditure.
    • Emphasis on social welfare and public health, comprising 65% of total spending.

ANALYSIS OF FISCAL DEFICIT AND BORROWING TRENDS

  • Projected Fiscal Deficit Increase:
    • Anticipated rise in revenue deficit to 0.5% of GSDP from 0.3%.
  • Borrowing Requirements:
    • Estimated 18-20% increase in capital outlays, necessitating higher borrowings.
  • Interest-free Centre Loans:
    • ₹1.3 lakh crore interest-free loans from Center to aid capital outlays.

EXPECTED BORROWING AND DEBT SCENARIO

  • Borrowing Increase Overview:
    • Predicted overall borrowings to surpass ₹87 lakh crore, up 9%.
  • State Development Loans:
    • State development loans, 65% of total borrowings, rose by 28% between April and November.
  • Off-Budget Debt Funding:
    • Off-budget debt funding set to rise by ₹7.5 lakh crore this fiscal.

RISK FACTORS AND FUTURE OUTLOOK

  • Economic Activity Impact:
    • Potential risk of GSDP reduction due to economic slowdown.
  • Potential Positive Influences:
    • Better tax buoyancy or increased support from the Centre could provide liquidity support to states.

CONCLUSION

  • Persisting Debt Challenges:
    • States’ indebtedness likely to remain at 31-32%.
  • Balancing Fiscal Health:
    • Challenges persist due to borrowing for capital outlays and limited revenue growth.
  • Dependency on External Factors:
    • State fiscal health dependent on economic activity and external support mechanisms.

SOURCE: https://www.livemint.com/economy/states-debt-to-remain-high-at-31-32-per-cent-of-their-gdp-in-fy24-amid-higher-capex-moderate-revenue-growth-11701425176025.html

Spread the Word