The debt burden is expected to rise by Rs 7.3 lakh crore in FY21 for just these states, compared to Rs 2.9 lakh crore in FY19. Twelve large states' finances were assessed through a model drawn up by ratings agency ICRA.
Due to the stress on finances caused by the COVID-19 pandemic, the capital expenditure (capex) of 12 major state governments is expected to decline by Rs 2.5-2.7 lakh crore in the current financial year, ratings agency ICRA said.
Jayanta Roy, group head of Corporate Sector Rating, said the firm estimates the financing envelope offered by market borrowings and loans from the central government for FY21 at Rs 9.2 lakh crore for all the 28 states and two union territories, and at Rs. 7.3 lakh crore for the 12 sample states.
“In our assessment, the aggregate funds available through the financing envelopes would not be sufficient for the budgeted capex and net lending of 11 of the 12 states in our sample. ICRA therefore expects a sizeable aggregate cut of Rs 2.5-2.7 lakh crore in the capital spending by these 12 states in FY2021," he said.
"Moreover, some states are assessed to report revenue deficits as large as the entire financing envelope available to them, implying severe cuts in capex may be on the anvil," Roy added.
Further, ICRA estimates the central tax devolution to these states to fall by 36.2 percent, from Rs 4.7 crore in the Budget to Rs 3 lakh crore in FY21. Aggregate revenue expenditure growth may also be dull, from a budgeted estimate of 10.5 percent to a measly 2.8 percent as gross state domestic products (GSDP) are hit.
The sample study of the 12 major states included Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala, Maharashtra, Punjab, Rajasthan, Tamil Nadu, Telangana, Uttar Pradesh and West Bengal.
Aditi Nayar, principal economist at ICRA, said, "Based on our estimates for FY21, we have forecast the fiscal deficit of 8 percent of the GSDP," with individual states lagging between 4.65 percent and 5.3 percent.
The debt burden is expected to rise by Rs 7.3 lakh crore in FY21 for just these states, compared to Rs 2.9 lakh crore in FY19, said Nayar. Outstanding borrowing has already grown by more than 25 percent, from Rs 2.3 lakh crore in the third quarter of FY20 to Rs 3.5 lakh in Q1FY21.
The ICRA economist also noted that they have estimated the state government's GSDP to contract by 7.5 percent in nominal terms for FY21, while India's gross domestic product (GDP) is expected to contract by 11 percent.