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Farm loan waivers to increase states' fiscal deficit in the election year: India Ratings

The agency says India's revenue will clock a deficit of 0.5 per cent of the GDP in FY20 due to a higher growth in revenue expenditure than in revenue receipts.

twitter-logo BusinessToday.In   New Delhi     Last Updated: January 21, 2019  | 19:37 IST
Farm loan waivers to increase states' fiscal deficit in the election year: India Ratings

Rating agency India Ratings and Research (Ind-Ra) has said India's fiscal deficit will be 3.2 per cent in FY20, more than its FY19 mid-year outlook of 2.8 per cent. It also said the upcoming Lok Sabha elections in May could give rise to populist measures like farm loan waivers and financial support schemes, which could hurt the overall fiscal situation in the country.

Maintaining a stable outlook, the agency said although this is higher than the fiscally prudent level of 3 per cent of the gross domestic product (GDP), there will not be a significant risk to the states' aggregate debt burden in FY20. The agency said India's revenue will clock a deficit of 0.5 per cent of the GDP in FY20 due to a higher growth in revenue expenditure than in revenue receipts, said the report.

"The competitive populism, in the nature of farm loan waivers and other financial support schemes, would take centre stage in the run-up to next general elections in May 2019. A larger impact is expected on fiscal and revenue deficit to gross state domestic product ratios for Madhya Pradesh, Kerala and Rajasthan, among non-special category states, in FY20," said the report.

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On the expenditure side, the agency expects India's revenue expenditure to grow 18.9 per cent YoY to Rs 33.2 lakh crore in FY20, up from 11.2 per cent in FY19. The announcement of farm loan waivers by Madhya Pradesh, Chhattisgarh, Assam and Rajasthan in December 2018 extends the list of states that have resorted to this mechanism to address farmers' distress, the report said.

The agency expects the states' aggregate capex/GDP to come in marginally lower for Tamil Nadu, Haryana, West Bengal and Kerala at 3.0 per cent in FY20 from the budget estimate of 3.07 per cent for FY19. The aggregate debt/GDP will likely rise to 25.1 per cent in FY20 from the budgeted 24.3 per cent for FY19, said the report. Madhya Pradesh, Tamil Nadu and Kerala are the most susceptible to clock an increase in the debt burden in FY20, said the agency. Besides, the gross market borrowings of the states are expected to be around Rs 5.7 lakh crore in FY20, which is higher than the states' budget of gross market borrowings of Rs 4.4 lakh crore for FY19.

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Edited by Manoj Sharma

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