Indicating rising stress levels in the finances of the states, India Ratings has revised downward the outlook on the states to stable-to-negative from stable as it expects aggregate fiscal deficit to touch 3 per cent in 2020-21 due to falling growth and poor tax mop-up.
The states had budgeted a 2.6 per cent deficit for FY2019-20.
Even the Centre is seen missing the 3.3 per cent fiscal deficit target by a wide margin as tax collections, divestment proceeds and even dividends have been missing the target from the very beginning.
India Ratings also expects states' revenue account on aggregate to clock a deficit of 0.4 per cent of GDP in FY2020-21 compared with a surplus of 0.01 per cent budgeted for FY2019-20.
A higher revenue expenditure than revenue receipts will primarily be led by the outgo related to interest payments in FY21 on account of higher borrowings in FY2019-20.
"Since we expect GDP growth to remain low even in FY21, states' finances are likely to continue witnessing revenue pressure, leaving a fiscal deficit of 3 per cent," the agency said, adding accordingly "our outlook on the same is revised downwards to stable-to-negative from stable."
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