States fiscal deficit seen jumping to 3pc in FY21

Indicating rising stress levels in the finances of the states, India Ratings has revised downward the outlook on the states to stable-to-negative from stable as it expects aggregate fiscal deficit to touch 3 per cent in 2020-21 due to falling growth and poor tax mop-up.

The states had budgeted a 2.6 per cent deficit for FY2019-20.

Even the Centre is seen missing the 3.3 per cent fiscal deficit target by a wide margin as tax collections, divestment proceeds and even dividends have been missing the target from the very beginning.

India Ratings also expects states' revenue account on aggregate to clock a deficit of 0.4 per cent of GDP in FY2020-21 compared with a surplus of 0.01 per cent budgeted for FY2019-20.

A higher revenue expenditure than revenue receipts will primarily be led by the outgo related to interest payments in FY21 on account of higher borrowings in FY2019-20.

"Since we expect GDP growth to remain low even in FY21, states' finances are likely to continue witnessing revenue pressure, leaving a fiscal deficit of 3 per cent," the agency said, adding accordingly "our outlook on the same is revised downwards to stable-to-negative from stable."