Rise in debt and guarantees a concern for states: Icra
Capital spending by thirteen major states will likely surge by 29% in FY24, supported by loans from the Centre, but the leverage level of the states studied indicated a worrying rise in their debt and guarantees to 30% of GSDP from 28.9% in FY23, rating agency Icra said on Tuesday.
Icra has projected the combined capital spending of these major states– Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Tamil Nadu, Telangana, Uttar Pradesh and West Bengal—to be Rs 6.2 trillion in FY24 from Rs 4.8 trillion in FY23. Their FY24 capex Budget Estimate is Rs 6.7 trillion.
With revenues likely to trail the budgeted targets, the revenue and fiscal deficits of the sample set are estimated at Rs 2.1 trillion and Rs 8.3 trillion, respectively, in FY24, exceeding the budgeted of Rs 1.4 trillion and Rs 7.7 trillion, respectively. So, the aggregate fiscal deficit in FY24 is projected to widen to 3.4% of GSDP from the budgeted 3.1% and 2.6% in FY23. The revenue deficit could widen to 0.9% of GSDP from FY24BE of 0.6% and 0.5% in FY23.
Fiscal deficit of AP, MP, Rajasthan, TN, UP and WB is forecast at 3.5-4.2% of GSDP in FY2024; Gujarat and Maharashtra below 3% of GSDP.
“In a discomfiting trend, the combined leverage (debt+ guarantees) level of the sample is expected to increase to 30% of the GSDP in FY24 from 28.9% of the GSDP in FY23, with continuing variation across the states,” Nayar said.
ICRA projects several states in the sample to have adequate funds for completing 90-100% of their budgeted capex in FY2024, while a few states may have to compress their spending by a sizeable extent such as Punjab. Notably, some states’ net borrowing ceiling (NBC) for FY2024 would be adjusted by the Centre on account of the incremental off-budget borrowings, which they had raised in FY22.
Additionally, Icra projected the grants from the Centre to the states in FY24 to decline sharply from the year-ago level, mainly on account of the discontinuation of the GST compensation grants and because of the tapering nature of the Finance Commission-recommended grants. Therefore, ICRA estimated total grants to the 13 states at Rs 3.2 trillion in FY24, nearly two-thirds of the budgeted amount and the lowest since FY20.
The agency has estimated gross state government securities issuance by states at Rs 9.5 trillion in FY24, up 25% on year.