NEW DELHI: After downgrading India’s sovereign rating outlook to ‘negative’, Credit Rating agency Moody’s has now flagged concerns over state-level deficit and said that slowing growth and continued infrastructure spending needs would keep deficits at the state level elevated, further challenging India’s fiscal consolidation efforts.
“State-level deficits will in turn continue to challenge fiscal consolidation at the general government level. States’ revenue outlook remains sensitive to growth in central government transfers and nominal GDP, with variations across states,” Moody’s said on Wednesday in its report, ‘Regional and Local Governments - India: Indian states face challenges in reducing deficits, constraining government fiscal consolidation’.
The report added that the current slowdown and low GST collections would add to the state-level debt. "Recurring state deficits will lead to greater debt accumulation. We expect Indian states’ debt burden to increase to fund significant infrastructure needs. States’ gross borrowing needs are budgeted at Rs 7.5 lakh crore (USD 104 billion or 3.4 per cent of national GDP) for fiscal 2020, a 28 per cent increase over fiscal 2019 levels," said Moody’s.
Moody’s projected a budget deficit of 3.7 per cent of gross domestic product (GDP) for the year ending March 2020, a breach of the government’s target of 3.3 per cent. Earlier, the 15th Finance Commission had raised concerns over the states’ finances with the finance ministry.