States expect subdued revenue receipts in FY20; cut expenditure growth

Over the past few weeks, several state governments have presented their budgets for 2019-20. A Business Standard analysis of 11 state budgets throws up four major trends. 

First, at the aggregate level, states have projected their own tax revenues to grow at a much slower pace in 2019-20 (BE) as compared to 2018-19 (RE). 

Second, while these states have pegged their non-tax revenues at almost the same level as last year, grants-in-aid from the Centre are budgeted to be marginally lower in the next financial year. 

Third, with revenue receipts expected to grow much slower in FY20, states have restricted the growth of their total expenditure, with even capital outlay projected to grow at a slower pace in FY20. 

Fourth, most states have budgeted to bring down their fiscal deficit in the coming years. 

This analysis is based on Budgets of 11 states — Andhra Pradesh, Assam, Chhattisgarh, Himachal Pradesh, Jharkhand, Kerala, Odisha, Punjab, Tamil Nadu, Uttar Pradesh and West Bengal. Data for some of these states has been sourced from PRS Legislative Research, while for others it has been taken directly from state Budget documents. 

At the aggregate level, the combined own tax revenue of these states is pegged to rise to Rs 6.12 trillion in FY20, up 10.5 per cent from Rs 5.54 trillion in FY19 (RE). By comparison, own tax revenue of these states had grown by 21.5 per cent in FY19 (RE). 

While states such as Andhra Pradesh and Chhattisgarh expect growth in their own tax collections to slow down considerably in the coming year, there are outliers. For instance, Kerala expects its own tax collections to increase by 23.8 per cent in FY20, up from 14.3 per cent in FY19 (RE). 

The state Budgets also show that these states have not factored in an increase in their non-tax revenues in the coming year. In FY20 (BE), the non-tax revenue of these states is pegged at Rs 1.2 trillion, almost the same as last year. In fact, some of these states, such as West Bengal, Assam, Tamil Nadu and Punjab, expect their non-tax revenues to be lower in FY20 as compared to FY19. 

On transfers from the Centre, these states expect their share in central taxes to grow at a slower pace in FY20. This is in line with the trend observed in the Union Budget, which projects states share to rise by 10.9 in FY20, compared to 13.1 per cent in FY19 (RE). 

Surprisingly, Budget documents show that these states expect grants-in-aid from the Centre to be marginally lower next year, as compared to the current financial year. For instance, Uttar Pradesh expects grants-in-aid to fall to Rs 68,062 crore in FY20 (BE), from Rs 75,360 crore in FY19 (RE), while Assam expects it to decline to Rs 22,248 crore from Rs 32,971 crore the year before. 

However, there are exceptions such as Andhra Pradesh, which expects to receive Rs 60,722 crore as grants-in-aid in FY20, up from Rs 50,696 crores the previous year. 

With revenues expected to grow at a slower pace, states have curtailed their expenditures. After growing at a staggering 26 per cent in FY19 (RE), total expenditure by these states is projected to grow by a mere 7.8 per cent in FY20 to Rs 19.64 trillion, up from Rs 18.21 trillion in FY19 (RE). Capital expenditure too is expected to slow down considerably. 

On the fiscal deficit front, most of these states have projected the deficit at either the same level or marginally lower in the coming years. For instance, Punjab, whose deficit is expected to touch 3.4 per cent of GSDP in FY20, expects to bring it down to 2.4 per cent by 2021-22. Similarly, Chhattisgarh, whose fiscal deficit has ballooned to 6 per cent in FY19 (RE), expects to bring it down to 3 per cent in FY20.