India Ratings ups outlook on states to stable

Maintaining a stable outlook on state finances next fiscal, India Ratings has said consolidated state finances will remain resilient even in the current economic downturn, despite a a marginal spike in the combined deficits of states.
The rating agency also has a stable outlook in its rated state-government guaranteed debt programmes and is likely to affirm all other state government guaranteed debt programmes ratings in FY15.
"The ratings on the Andhra government guaranteed debt programme have been put on rating watch evolving following bifurcation of the state," an India Ratings report said here today.
The agency estimates consolidated fiscal deficit of states to increase to 2.3 per cent of GDP in FY14 as against the budget estimate of 2.2 per cent. However, this would not affect their consolidated credit profile, it added.

The study said value added tax on petroleum products could pose a concentration risk for consolidated state finances if crude oil prices decline, though this at present looks difficult. The petroleum sector contributed nearly 30 per cent to the VAT collection of states in FY13.
The study highlighted that aggregate debt of states as a percentage of GDP is likely to increase to 21.7 per cent in FY14 from the budgeted estimate of 21.5 per cent.

"Despite this slippage, debt will be sustainable as we believe nominal growth of economy in excess of interest rate on debt will continue to support the agency's debt sustainability expectations," it said.

The rating agency excepts the liquidity of states to remain comfortable in FY15.
However, it warned that fiscal profligacy in the run-up to general elections and a prolonged growth slowdown could lead to the outlook being revised to negative, but it saw low probability of both possibilities.