HomeEconomy NewsStates' fiscal deficit likely to improve to 3.6% in FY23; debt to stabilise: India Ratings

States' fiscal deficit likely to improve to 3.6% in FY23; debt to stabilise: India Ratings

The revision was made on the back of better-than-expected growth in revenue receipts and higher growth in the nominal GDP in FY22, India Ratings said in a note. The agency estimates India’s nominal GDP to grow 17.6 percent this fiscal, higher than the previous estimate of 15.6 percent in FY22.

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By CNBCTV18.com February 18, 2022, 4:56:04 PM IST (Updated)

States' fiscal deficit likely to improve to 3.6% in FY23; debt to stabilise: India Ratings
India Ratings and Research on Friday revised the FY23 outlook on state finances to "improving" for FY23 from "neutral". The agency expects the aggregate fiscal deficit of the states to come in at 3.6 percent of gross domestic product compared to 3.5 percent in FY22.The agency had earlier forecasted a 4.1 percent fiscal deficit for FY22.


The revision was made on the back of better-than-expected growth in revenue receipts and higher growth in the nominal GDP in FY22, India Ratings said in a note. The agency estimates India’s nominal GDP to grow 17.6 percent this fiscal, higher than the previous estimate of 15.6 percent in FY22.

In addition, the agency expects the states’ aggregate debt to GDP ratio to increase marginally to 29.5 percent in FY23 from 29.3 percent in FY22 keeping with the debt burden trajectory recommended by the 15th Finance Commission for the FY22-26 award period. The Finance Commission has recommended the states' aggregate debt/GDP at 31.3 percent for FY23.

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An economic recovery led pick-up in the own-revenue collection, combined with higher than budgeted tax devolution from the Centre, will moderate the states' aggregate revenue deficit to 0.73 percent from the previous estimate of 1.3 percent in FY22, the agency said, adding it expects a marginally lower aggregate revenue deficit of 0.69 percent in FY23.

The agency believes states have greater leg-room to undertake higher capital expenditure in FY23 due to the Rs 1 trillion financial assistance by way of the 50-year interest-free loans extended by the Centre in the Budget 2023. The agency expects capex to GDP ratio to be higher at 3.04 percent in FY23 than 2.84 percent in FY22. The agency believes the fiscal deficit, therefore, would be largely channelised towards the development of state infrastructure in FY23.

The agency expects gross and net market borrowings by the states in FY22 to be lower than at Rs 6.6 lakh crore and Rs 4.6 lakh crore, respectively, than its previous estimate of Rs 8.2 lakh crore and Rs 6.2 lakh crore. Their gross and net market borrowings are estimated at Rs 7 lakh crore and Rs 4.63 lakh crore, respectively, in FY23 due to an improvement in states' aggregate revenue receipts and higher tax devolution from the Centre.

(With inputs from PTI)
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