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State finances as percentage of budget estimates at decadal low for April-August 2019: report

Total taxes collected by 17 states grew 15.8 per cent year-on-year (y-o-y) in August 2019, marking its fastest growth in eight months

twitter-logo Niti Kiran        Last Updated: October 18, 2019  | 19:29 IST
State finances as percentage of budget estimates at decadal low for April-August 2019: report
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An analysis of the monthly finances of 17 state governments which together accounts for more than 84 per cent of total receipts of all states and approximately 85 per cent of all states' budgets reveals the continuation of a worrying trend. A recent report by Motilal Oswal Institutional Equities points towards a disappointing progress of the states' finances in FY20 despite an improvement in the month of August (the latest available).  Here are the details.

Total taxes collected by 17 states grew 15.8 per cent year-on-year (y-o-y) in August 2019, marking its fastest growth in eight months. In fact, states' taxes have been volatile in FY20; taxes declined for the first time in 14 months in May'19 (-10.6 per cent), then grew slightly in Jun'19 (+3.6 per cent) before declining sharply again in Jul'19 (-12.1 per cent). Accordingly, total spending posted its second consecutive double-digit growth in August 2019, after successive declines in May-June 2019.  

The cumulative data for the first five months of FY20, however, does not show encouraging signs. Tax receipts of 17 states grew only 1.4 per cent y-o-y in April-August 2019; however, due to faster growth in grants-in-aid from the center, states' total receipts grew 4.1 per cent y-o-y during the period. With this, states' total receipts were only 31.5 per cent of FY20 Budget Estimates (BE), the lowest in a decade since the availability of monthly data. Moreover, since tax growth was much lower at only 1.4 per cent, the share of taxes in states' total receipts has declined from over 80 per cent in FY14 to sub-76 per cent in FY20. Grants-in-aid to states from the center grew around 21 per cent y-o-y in Apr-Aug'19 due to which its share of total receipts increased from 10 per cent to 17 per cent during the corresponding period.

As far as states' total spending is concerned, with only 5.8 per cent y-o-y growth during the first five months of fiscal 2020, it was 31 per cent of FY20 BE - the lowest in five years and much lower than 32.2 per cent a year ago. Within total spending, since capital spending (excluding loans & advances) growth was negligible at 0.6 per cent y-o-y during April-August 2019, it was only about 23 per cent of the target; while core revenue spending (excluding interest payments) was much higher at 33.6 per cent of BE. The share of both capital and core revenue spending in Apr-Aug'19 was however lower than the share spent in the corresponding period a year ago.

Although states' receipts and spending were subdued in the first five months of FY20, higher growth in spending (in y-o-y terms) has led to higher fiscal deficit in FY20 year-to-date. In Apr-Aug'19, combined fiscal deficit of 17 states was 28.2 per cent of BE, higher than 26.6 per cent during the corresponding period a year ago.

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