Farm support measures to increase states' fiscal deficit in election year: India Ratings report

New Delhi: Competitive populism in the form of farm loan waivers and other schemes ahead of the general polls would inflate cumulative fiscal deficit of states, a report by India Ratings and Research (Ind-Ra) has pointed out.

In its report, the Fitch group company has maintained a stable outlook on the finances of Indian states for 2019-20.

The agency expects the aggregate fiscal deficit of states to come in higher at 3.2 percent in 2019-20 than its forecast of 2.8 percent in the 2018-19 Mid-Year Outlook.

Farm support measures to increase states fiscal deficit in election year: India Ratings report

Representational image. PTI

"Although this is higher than the fiscally prudent level of 3 percent of the gross domestic product (GDP), Ind-Ra believes this will not pose a significant upside risk to states' aggregate debt burden in 2019-20," the report said.

Ind-Ra expects states' revenue account on aggregate to clock a deficit of 0.5 percent of GDP in 2019-20 due to higher growth in revenue expenditure than in revenue receipts.

"The competitive populism, in the nature of farm loan waivers and other financial support schemes, would take centre stage in the run-up to next general elections in May 2019.

"A larger impact is expected on fiscal and revenue deficit to gross state domestic product ratios for Madhya Pradesh, Kerala and Rajasthan, among non-special category states, in 2019-20," the report said.

The report said the announcement of farm loan waivers by the governments of Madhya Pradesh, Chhattisgarh, Assam and Rajasthan in December 2018 extends the list of states that have resorted to this mechanism to address farmers' distress.

Additionally, Odisha and Jharkhand announced schemes to provide financial assistance to small and marginal farmers along the lines of the Rythu Bandhu Scheme implemented in Telangana, it said.

Ind-Ra estimates the gross market borrowings of states to be Rs 5.7 trillion (lakh crore) in 2019-20.

The aggregate gross market borrowings by states would be in the range of Rs 5.01 trillion-Rs 5.13 trillion in 2018-19, higher than the states' budgeted gross market borrowings of Rs 4.4 trillion for 2018-19.

 

 

To keep watching India’s No. 1 English Business News Channel – CNBC-TV18, call your Cable or DTH Operator and ask for the Colors Family Pack (inclusive of 24 channels), available for Rs. 35/- per month, or subscribe to the channel for Rs. 4/- per day.

To keep watching the Leader in Global Market & Business News – CNBC-TV18 Prime HD, call your Cable or DTH Operator and ask for the Colors Family HD Pack (inclusive of 25 channels), available for Rs. 50/- per month, or subscribe to the channel for Rs. 1/- per day.

Firstpost is now on WhatsApp. For the latest analysis, commentary and news updates, sign up for our WhatsApp services. Just go to Firstpost.com/Whatsapp and hit the Subscribe button.

Updated Date: Jan 21, 2019 17:15:30 IST

Also See