Fiscal deficit worries states

States ended fiscal 2005-06 with a cash surplus of Rs 41,000 cr.

Has the fiscal health of Indian states really improved? They ended fiscal 2005-06 with a cash surplus of Rs 41,000 crore, but their combined fiscal deficit as a percentage of the GDP increased to 3.2 per cent according to revised estimates. This is up from last year's Budget estimates of 3.1 per cent.

However, preliminary data available with the finance ministry reveals that the combined revenue deficit has improved to 0.6 per cent of the GDP in the revised estimates from 0.9 per cent projected in the Budget estimates.

This is primarily because of reduction in the revenue deficit by Himachal Pradesh, Uttar Pradesh, Maharashtra, Karnataka, Madhya Pradesh, Punjab and Tamil Nadu.

Officials said it was still early to predict if the fiscal position of states had improved since the cash surplus is largely a result of the 12th Finance Commission. Of the Rs 41,000 crore cash surplus with states as on March 31, Karnataka, Tamil Nadu, Uttar Pradesh, West Bengal, Gujarat and Maharashtra had more than Rs 3,000 crore each, while Andhra Pradesh, Assam, Madhya Pradesh, Punjab, Rajasthan and Orissa had a surplus of more than Rs 1,000 crore.

Officials said the finance ministry was undertaking a debt sustainability analysis of the states. "We want to see if the non-interest expenditure of the states is stabilising and whether their investments are going up.

Mere cash surplus is not the correct barometer of a state's fiscal health," an official said. He added that the increase in combined fiscal deficit could be on account of an increase in expenditure.

As many as 19 states have implemented the Fiscal Responsibility and Budget Management Act. Officials pointed out that the current fiscal would prove crucial for the states.

"Since they have begun the year with a cash surplus, we have to wait to see how they utilise the money," they said.