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Combined fiscal deficit of Centre, states to be at 12.7% of GDP in FY21: SBI

The bank's economists analysed finances of 13 states based on their budget, and said that the average fiscal deficit in FY21 is 4.5 per cent.

Some of the states have indicated that their per capita GSDP will increase by more than Rs 10,000. Some of the states have indicated that their per capita GSDP will increase by more than Rs 10,000.

The combined fiscal deficit of Centre and states will be at around 12.7 per cent of GDP in fiscal year 2020-21 due to higher expenditure and fall in tax receipts of states amidst the COVID-19 pandemic, the State Bank of India (SBI) said in its research report 'Ecowrap'.

The bank's economists analysed finances of 13 states based on their budget, and said that the average fiscal deficit in FY21 is 4.5 per cent.

"For FY22, states have budgeted average fiscal deficit of 3.3 per cent. The consolidated fiscal deficit of the Centre and states is thus likely to be around 12.7 per cent of GDP, assuming that the Centre's fiscal deficit is likely to be undershot from 9.5 per cent to 8.7 per cent of GDP in current fiscal," the report said.

Some of the states have projected their gross state domestic product (GSDP) will increase in FY21, which would mean a lower than 8 per cent contraction in India's GDP, forecasted by the Central Statistics Office (CSO), in this fiscal year.

"...if we purely look at the budgeted GSDP estimates of states like Uttar Pradesh, West Bengal, Madhya Pradesh, Rajasthan and even Gujarat that shows an expansion in FY21, then the all-India GDP contraction that CSO projects at 8 per cent in FY21 would be perhaps much lesser," Ecowrap said.

Also read: India's fiscal deficit reaches 66.8% of revised Budget estimate at January end

It also highlighted that while the per capita GDP at all-India level is expected to decline by almost Rs 7,200 in FY21 as compared to FY20, some of the states like Karnataka, Uttar Pradesh and West Bengal have indicated that their per capita GSDP will increase by more than Rs 10,000 during the same period.

The report said that states were at the forefront in the fight against COVID-19 and the impact of collapse in tax receipts and significant increase in expenditures have made their fiscal position 'tenuous'.

"...the average per capita income of 13 major states for the three year period ended (FY22 budget estimates) grew by 7.1 per cent, whereas per capita debt of all these states expanded by 16.4 per cent," the report said.

To compensate for the loss in revenue due to lower than anticipated GST revenue, sales tax and VAT, states curtailed their capital expenditure by 11.3 per cent as compared to that proposed initially in FY21 Budget. However, it said, the states have proposed to recover their capital expenditure by 37 per cent in FY22.

Despite the pandemic highlighting the importance of quality and accessible healthcare, only five states out of the 13 analysed have budgeted more than 20 per cent growth in expenditure on health and family welfare for FY22. "This indicates that states are more reliant on Central funds for healthcare facilities, in the face of revenue decline," the report said.

Also read: States' fiscal deficit likely to reach 4.3% of GDP in 2021-22: IndRa

Also read: OECD pegs India's FY22 GDP growth at 12.6%, fastest in the world