Under developed, special states to benefit from Budget: Fitch

The Union Budget 2011-2012 is likely to be more beneficial for the special and underdeveloped states, including J&K, Himachal Pradesh and Bihar, rating agency Fitch today said.

"The Union budget 2011-2012 is a credit positive for special-category states, who receive a larger share of their revenues from the central government. Underdeveloped states are benefited from higher allocation to Backward Region Grant Fund in FY12," Fitch Ratings Director Devendra Kumar Pant said.

The report attributed the benefits to the backward and special states to the higher growth expectations in 2011-12 (9%), which has led to the increase in the budget forecasts for overall net transfers (share in central taxes, and grants and loans) from the central government to states by 23.7%

Special-category states (all eight states in the North-east, Jammu and Kashmir, Himachal Pradesh and Uttarakhand) will receive Rs 8,000 crore in special assistance, as per the Budget announcement.

Besides, the J&K will receive Rs 8,000 crore, and underdeveloped states will benefit from Rs 9,890 crore grant fund.

The Budget has allocated Rs 400 crore for improvement in the rice cultivation in Assam, West Bengal, Orissa, Bihar, Jharkhand, Uttar Pradesh and Chhattisgarh, and expenditure allocation for improvement in the rural infrastructure is increased by Rs 10,000 crore.

"The increased allocations for rural infrastructure and inflation-linked rural wages under employment guarantee schemes will benefit all states," Fitch said.

The budget expects the economic to grow by 8.6% in the financial year ending 31 March 2011, and the government expects a growth of 9% in 2011-12.

Due to this higher growth expectation, the Budget forecasts states' tax-share income to increase by 26.1% in 2011-12 as compared with 2010-11. It also projects grants from federal government to states to go up by 22.8%.

Higher transfers from the federal government would help states consolidate their finances, it said.

Consolidation of general government (federal and state) finances in 2011-12 would also ease crowding-out pressure on corporate borrowing.