NEW DELHI: States have shown sustained improvement in their finances, with the combined gross fiscal deficit (GFD) contained at 2.8% of gross domestic product (GDP) in the financial year 2022-23, according to the Reserve Bank of India’s report on state finances.
The reduction in deficit was primarily on account of a decrease in revenue deficit while maintaining robust capital outlays. Among the southern states, Andhra Pradesh’s revised fiscal deficit stood at 3.6% of the GDP in FY23 as against 2.2% in the previous year and budgeted fiscal deficit of 3.8% for FY24. Tamil Nadu’s revised fiscal deficit was at 3.2% of GDP in FY23 as against 4% in FY22 and budgeted fiscal deficit of 3.4% in FY24. Meanwhile, Karnataka and Kerala revised fiscal deficit was at 2.7% and 3.5% respectively in FY23 as compared with 3.3% and 4.9% in FY22.
The implementation of the goods and services tax (GST) has contributed to increased tax buoyancy for the states, said the report. However, outstanding liabilities may remain higher than 30% of gross state domestic product (GSDP) for several states, despite the budgeted fall in outstanding liabilities to 27.6% of GDP from the peak of 31% in FY21. The fiscal outlook for states remains favorable, with expectations of improved tax revenue in the second half of the financial year. States have budgeted a gross fiscal deficit to GDP ratio of 3.1% for the financial year 2023-24, below the prescribed limit of 3.5% set by the Centre.
However, some states have set a GFD to GSDP ratio exceeding the Fiscal Responsibility Legislation (FRL) limit of 3%. States’ dependence on net market borrowings has declined to 76% in the budgeted GFD for 2023-24. Revenue expenditure is projected to be 14.4% of GDP, with social sector expenditure at 8.0% of GDP.