NEW DELHI: THE rising fiscal deficit of state governments has become a matter of great concern as the deficit of 19 states amounted to 25.9 per cent of the budget estimate in the third quarter of this fiscal, which is the worst in eight years.
“Aggregate fiscal deficit of 19 states amounted to 25.9 per cent of the budget estimate (BE) in 3QFY19, almost double the average of 13.2 per cent during the last five years,” said the Economy Observer, a report by Motilal Oswal.
Consequently, in the first nine months, the aggregate fiscal deficit of the 19 states touched 62.5 per cent of the BE versus an average of 44.3 per cent across the last five years—the worst in at least the past eight years, it said.
The Centre’s fiscal deficit, at 112.4 per cent of BE, was also the highest in at least 19 years.
The issue was also flagged by Finance Commission chairman N K Singh last week during his visit to Telangana.
“What we found so far is varied conformity to the fiscal goals by the states as they are at different stages of disobedience and compliance. Therefore, each state needs to have a separate road map to bring down the fiscal deficit and the debt,” Singh told media persons after his meeting with Telangana Chief Minister K Chandrashekar Rao.
Bihar’s fiscal deficit was 5.5 times the full-year BE, while Kerala, Rajasthan and Madhya Pradesh (MP) almost breached their full-year targets during the period.
Another problem area is that GDP growth in states is not matching their spending.
“Aggregate total spending of 19 states increased by 16.2 per cent YoY in 3QFY19, the fastest pace of spending growth in two years. Growth, however, was aided by multi-year lowest growth of 2.7 per cent a year ago in 3QFY18,” the report added.
According to Nikhil Gupta, lead economist and the author of the report, slower growth in receipts vis-à-vis spending during 9MFY19 led to higher fiscal deficit during the period.