Some states may miss fiscal target in FY12: ICRA

Some states including Punjab may find its difficult to meet their fiscal targets during 2011-12 on account of moderation in economic outlook and failure to curtail expenditure, says a report by ratings firm ICRA.

"A few state governments may find it difficult to meet the fiscal targets set by the 13th Finance Commission in 2011-12," ICRA said in a report 'Fiscal Consolidation', released today.

The report examines the finances of six state governments -- Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Punjab and Tamil Nadu -- in which ICRA has rated the debt of a number of government entities.

"The Budget Estimates for 2011-12 of Andhra Pradesh, Gujarat, Karnataka and Maharashtra broadly indicate that these States would be able to adhere to the fiscal targets of balancing the revenue account and restricting the financing gap to 3% of GSDP in 2011-12," ICRA said.

However, Punjab is likely to register a deficit of 3.45%.

The fiscal targets set by the 13th Finance Commission require 19 of the 28 States to eliminate revenue deficits and curtail financing gaps -- defined as revenue balance plus capital receipts minus capital outlay and net lending, to 3% of gross state domestic product (GSDP) in 2011-12.

ICRA said that while some states have put in place measures to augment revenues during the last two years, the slowdown in economy and rising expenditures may hinder their fiscal target plans.

"...The moderating macroeconomic outlook is likely to have a considerable bearing on the pace of revenue growth in the near term, even as the ability of the state governments to curtail the growth of committed expenditures is likely to be limited.

"Accordingly, some states may find it challenging to report revenue surpluses in 2011-12," ICRA said.

It said sales tax collections of state governments are likely to report moderate growth in 2011-12.

"The adverse impact of the weakening consumption demand on growth of sales tax revenues is likely to be partly offset by the prevailing elevated price levels," it said.

However, a number of states are likely to restrict their financing gap to below 3% of GSDP but some of them may need to defer or cancel discretionary capital expenditure in order to achieve this target, according to the report.

ICRA said that expenditures such as salaries and pensions are likely to expand considerably, following increases in the rate of dearness allowance, which reflect the sustained high inflation in the country.