A recent study conducted by India Ratings and Research has shed light on a promising trend in the fiscal landscape of Indian states. According to the analysis of 26 regional budgets presented thus far, the quality of deficit is expected to witness a significant enhancement in the fiscal year 2024-25, reaching its pinnacle in six years.
The assessment of deficit quality is gauged by the revenue deficit as a percentage of the fiscal deficit, with a lower percentage indicating a superior quality of deficit. The study indicates a remarkable improvement, with the figure plummeting to 7.3 percent in 2024-25 from 14.7 percent in the preceding fiscal year.
This positive trajectory is attributed to a consolidated fiscal deficit of 3.0 percent of GDP and a revenue deficit of 0.2 percent of GDP.
Sunil Kumar Sinha, principal economist at India Ratings, noted, "This also means borrowings are primarily used for capex and the focus on capex has remained intact," highlighting a strategic utilization of borrowed funds towards capital expenditure. The budgets analyzed represent states that collectively account for 96.1 percent of India's GDP, indicating a comprehensive assessment of the nation's fiscal health.
Another parameter employed to evaluate the quality of government expenditure is the capital outlay as a percentage of total expenditure. While this measure is expected to remain steady in the upcoming fiscal year compared to the current year, it is anticipated to surpass pre-Covid levels.
The study highlights significant variances among states concerning capital outlay-to-total expenditure ratios. Odisha, Tripura, and Uttarakhand exhibit the most substantial improvements, while Bihar, Nagaland, and Madhya Pradesh witness declines in this ratio.
Among the notable aspects gleaned from the analysis of the state budgets for 2024-25 are:
- A projected increase of 13.9 percent in states' own tax revenues and 11.9 percent in non-tax revenues, contributing to an overall rise in own revenues to 7.9 percent of GDP.
- Committed expenditure, including interest payments and pensions, constitutes 31.6 percent of revenue expenditure, reflecting an upward trend from the previous fiscal year.
- Gross and net market borrowings are anticipated to reach record highs of Rs 10.2 lakh crore and Rs 7.2 lakh crore, respectively.
-States' capital outlay is projected to grow by 7.1 percent to Rs 8.7 lakh crore, with a notable shift towards increased spending on social services such as health and education.
Paras Jasrai, senior analyst-public finance at India Ratings, commented, "It is encouraging to note that states such as Uttar Pradesh, Gujarat, etc. are at the forefront on social services spending as they have lagged in human development indicators for quite some time."
The study suggests that the COVID-19 pandemic has prompted states to prioritize investments in health and education, signaling a positive shift towards the development of human capital. With prudent fiscal management and a focus on capital expenditure, Indian states appear poised for a period of sustained economic growth and development in the coming fiscal year, the report stated.
Follow us
