States' fiscal balances stay weaker than pre-Covid levels

The pandemic continues to affect state finances with first quarter revenue and expenditure numbers pointing out that a full economic recovery is still a long road ahead.

According to the fiscal data reported by the Comptroller and Auditor General (CAG) for 19 state governments for Q1 FY22, the states' combined revenue receipts in that quarter were only 2% higher than the pre-Covid level of Rs 4.3 lakh crore.

Simultaneously, the revenue spending of the 19 state governments increased by 14% to Rs 4.9 lakh crore in Q1 FY22 from the pre-Covid level of Rs 4.3 lakh crore, possibly reflecting higher social sector spending amid the second wave of Covid-19.

The 19 states' combined revenue balance has, thus, slipped into a deficit of Rs 50,000 crore in Q1 FY22, in contrast to the small surplus of Rs 10,000 crore in preCovid Q1 of FY20. Moreover, their fiscal deficit has nearly doubled to Rs 1.1 lakh crore in first quarter of fiscal 2022 from the pre-Covid level of Rs 60,000 crore in the first quarter of fiscal 2020.

According to an analysis by ICRA, varied recovery in the revenues and expenditures of 19 state governments in the April-June quarter has resulted in states' combined fiscal balances reporting a deterioration, relative to the preCovid level.

ICRA Chief Economist Aditi Nayar said that though the recovery in revenue receipts of states was led by non-tax revenues, their own taxes and Central tax devolution trailed the level witnessed in Q1 FY20. Moreover, the revenue spending of the 19 state governments increased by a sharper 14% in the first quarter.

"Accordingly, the 19 states' combined revenue balance has slipped into a deficit of Rs 0.5 trillion in Q1 FY2022, in contrast to the small surplus of Rs. 0.1 trillion in Q1 FY2020," Nayar said.

States' combined revenue receipts in Q1 were only 2% higher than the pre-Covid level of Rs 4.3 lakh crore