The combined fiscal deficit of five states— Uttar Pradesh, Punjab, Maharashtra, Rajasthan and Karnataka—which had announced farm loan waiver programmes, could widen by Rs 1,07,700 crore or 0.65 per cent of the GDP in the current fiscal, according to a report by India Ratings.
The combined fiscal deficit of these states for FY18 has been budgeted at 2.7 per cent of the GDP or Rs 4.48 lakh crore. India Ratings estimates this to be 3 per cent of GDP or Rs 4.99 lakh crore. While this is higher than the budgeted figure, it is considerably lower than FY17.
India Ratings’ report is based on the analysis of 29 state budgets, the impact of the farm debt waivers announced outside the budgets and implementation of the goods and services tax (GST) from July 2017.
Out of the five states, the farm debt waivers of UP and Punjab are part of their respective FY18 budgets while that announced by Maharashtra, Rajasthan and Karnataka are outside their annual budgets. The latter lot will have to either generate additional resources to fund farm debt waivers or cut their budgeted expenditure, the report noted.
It added that if the additional expenditure on account of farm loan waiver is to be met by cutting down on other spends, the axe usually falls first on the budgeted capital expenditure, followed by social expenditure, it said. “Both cuts do not augur well from the point of view of the medium to long term growth prospects of these states,” the report added.