Fi­nan­cial Health of States to Worsen this Fis­cal: No­mura

Bro­ker­age says fis­cal deficits to rise to 3.3% of GSDP in FY17; State bor­row­ings up 22% in FY16

The Economic Times - - Commodities Plus - Our Bu­reau

Mum­bai: The fi­nan­cial con­di­tion of state govern­ments in In­dia will worsen this fis­cal bur­dened by slow tax rev­enue, higher salaries to state gov­ern­ment em­ploy­ees due to the Sixth Pay Com­mis­sion and other pay­ments like in­ter­est on Uday bonds, Ja­panese bro­ker­age No­mura Se­cu­ri­ties said in a note.

No­mura stud­ied 16 state bud­gets for the last and cur­rent fis­cal year. It pre­dicts state fis­cal deficits will rise to 3.3% of the gross state do­mes­tic prod­uct (GSDP) in fis­cal 2017, up from 3.2% in fis­cal 2016 but more im­por­tantly much higher than the 2.8% bud­geted by the state gov­ern­ment. State gov­ern­ment bor­row­ings have risen 22% in fis­cal 2016 to .₹ 2,95,000 crore, No­mura econ­o­mists Sonal Varma and Neha Saraf said in the note. Higher state bor­row­ing from the mar­ket means state gov­ern­ment borro- wings now stand at 33% of the to­tal bor­row­ings from the mar­ket, up from 12% in fis­cal 2007.

The rise has been de­spite the cen­tral gov­ern­ment in­creas­ing al­lo­ca­tion from cen­tral taxes to state govern­ments to 42% from 32% in the last one year, No­mura said.

Varma and Saraf es­ti­mate that state mar­ket bor­row­ings will rise to .₹ 3,50,000 crore in FY17 and fur­ther to .₹ 3,90,000 crore in fis­cal 2018.

“The re­demp­tion pro­file, UDAY-re­lated in­ter­est bur­den and the im­ple­men­ta­tion of the rec­om­men­da­tions of the sev­enth pay com­mis­sion in most states by FY18 will push state gov­ern­ment bor­row­ings higher in FY18,” Varma and Saraf said.

Higher bor­row­ings from state govern­ments will en­sure that the dif­fer­ence be­tween state bond yields and the 10-year bench­mark cen­tral gov­ern­ment se­cu­rity will re­main el­e­vated at 70 ba­sis points. One ba­sis point is 0.01 per­cent­age point.


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