States' fisc gap may shrink to 4.3% of GDP

The aggregate fiscal deficit of states is likely to be at 4.3% of the gross domestic product (GDP) in 2021-22 compared to 4.6% in 2020-21, says a report by India Ratings and Research.

The rating agency has revised the outlook on state finances to stable for FY22 from stable-to-negative. "We expect the aggregate fiscal deficit of states for FY22 to come in at 4.3% of the gross domestic product (GDP) compared to 4.6% (revised) in FY21," the agency said in a report.

It had earlier forecast FY21 fiscal deficit of states to be at 4.5% but revised it later due to a sharper-than-expected contraction of 6.1% y-o-y in the nominal GDP.

The agency estimates the nominal GDP to grow 14.5% in FY22, and believes a gradual pick-up in revenue collections could lead to an improvement in the capital expenditure from FY22.

The report said due to the economic downturn, even the union government finances are under pressure, leading to a lower-than-budgeted devolution of Rs 5.50 lakh crore to states in FY21 (revised estimate: RE) as against the budget estimate (BE) of Rs 8.03 lakh crore.