MUMBAI: The Uttar Pradesh government is likely to miss the budgeted revenue surplus of 2.8 per cent by a wide margin, even though it may meet the fiscal deficit target of 3.5 per cent next fiscal, says a report by India Ratings.
Noting that the UP budget presented earlier this week made many over-the-top assumptions regarding nominal GSDP growth and own revenue, India Ratings said while the fiscal deficit target of 3.5 per cent of gross state domestic product (GSDP) for FY24 is achievable, the revenue surplus is expected to be half of what has been budgeted.
While the state has budgeted a revenue surplus of 2.8 per cent of the GSDP, the agency expects it to be at just about 1.4 per cent in FY24.
Barring FY21, UP has maintained its revenue surplus position since FY06.
The Centre allows states to borrow 3 per cent of their GSDP or as fiscal deficit, and an additional 50 basis points if they meet certain reforms in the power distribution and certain areas.
According to the revised estimates for FY23, the revenue surplus of the state improved further to 2.6 per cent or Rs 53,907 crore from the budget estimate of 2.1 per cent or Rs 43,124 crore, which was only 1.8 per cent or Rs 33,430 crore in FY22.
Despite a modest 9.9 per cent nominal growth in FY23, the revenue receipts grew 29.1 per cent on-year, higher than 25.9 per cent growth in the current expenditure, says the report.
The agency said notwithstanding the better revenue surplus, fiscal deficit has been estimated at Rs 81,326 crore or 4 per cent of GSDP, up from Rs 81,180 crore or 4 per cent of GSDP due to higher allocation for capex.
However, given the capacity challenges in meeting capex targets historically, the agency believes that the trimming down of capex will help the state in achieving a better fiscal outcome in FY23, which it sees printing in the range of 3-3.5 per cent.
The state has collected lower receipts than budgeted for FY23, which led to a compression in its budgeted expenditure.
The total receipts were lower by Rs 20,396 crore and so were the state's own-tax revenue and own non-tax revenue to the tune of Rs 35,417 crore and Rs 11,112 crore, respectively in FY23.
But higher mop-up of transfer of resources from the Centre helped it cap the shortfall somewhat.
Tax devolution and grants were higher by Rs 23,247 crore and Rs 2,886 crore, respectively, in FY23 than the budgeted.
Expenditure compression largely came in from lower current expenditure as it was snipped by Rs 31,180 crore, which was led by committed components like salaries and pensions in FY23.
On the other hand, the state estimated to expend Rs 10,931 crore more in capex than budgeted.
The budget proposals revolve around a nominal GSDP growth of 19.1 per cent over FY23 which was 9.9 per cent in FY22.
But the agency thinks the nominal GSDP growth budgeted for FY24 is over-optimistic, given the likely fall in inflation and the average nominal GSDP growth of 11 per cent during FY16-20.
This also means that budgeted revenue projections for FY24 are implausible.
Accordingly, the agency expects its nominal GDP growth to come in at 9.7 per cent in FY24, marginally down from 10 per cent during FY16-20.