Ind-Ra revises fiscal deficit forecast

India Ratings and Research (Ind-Ra) on Friday revised downward its forecast for aggregate fiscal deficit of Indian states to 4.1% of gross domestic product (GDP) for FY22 from its earlier estimate of 4.3%, because of visible economic recovery and higher-thanexpected gross tax collections.

“The impact of the second covid wave on the economy notwithstanding, Ind-Ra estimates India’s nominal GDP to grow 15.6% in FY22, higher than its 10 February 2021 estimate of 14.5% in FY22,” the rating agency said.

Revenue receipts of state governments are expected to improve, backed by an economic recovery, resulting from a large section of the populace receiving vaccinations, India Ratings said.

“This would lead to states further easing restrictions on business and commercial activity. The agency now expects the aggregate revenue deficit of states to come in marginally lower at 1.3% of GDP in FY22 than the earlier forecast of 1.5% of GDP,” it said.

The rating agency analysed information about 14 states for the first quarter of FY22.

“The aggregate revenue receipts of these 14 states grew 30.8% to ₹3.95 trillion during April-June period of FY22. Although the considerable improvement is because of a low base, revenue receipts grew 1.5% in 1QFY22 over the pre-covid-19 period of 1QFY20. The aggregate own tax and non-tax revenue receipt of 14 states grew 77% year-on-year (y-o-y) and 46% y-o-y, respectively, in 1QFY22, which indicates these states’ revenue collection was resilient to the disruptions from the second covid wave,” it said.

India Ratings expects the aggregate debt/GDP ratio of states to come in lower at 32.4% of GDP in FY22 from the earlier estimate of 34%, in line with the slight moderation in fiscal deficit in FY22.

“All states’ gross market borrowings were ₹7.88 lakh cror in FY21. During April-July 2021, states’ aggregate market borrowing was lower at ₹1.94 lakh crore than ₹2.1 lakh crore in April-July 2020,” the rating agency said.