Ind-Ra's estimate shows that the aggregate fiscal deficit of states at 3.2 per cent of GDP in 2016-17 is expected to be marginally better than the 3.4 per cent in FY16 (revised estimates, RE), the credit rating agency said in a release.
According to study, the aggregate impact of UDAY on fiscal deficit of 13 states that have joined UDAY till date will be 0.47 per cent of GDP in 2016-17.
Five states incurring high distribution losses that have not yet joined the UDAY scheme are Telangana, Madhya Pradesh Maharashtra, Tamil Nadu and West Bengal, it said.
Ind-Ra's analysis shows that once they go ahead, state finances of even Telangana, Madhya Pradesh and Tamil Nadu will be under strain.
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The agency predicted that despite marginally better fiscal performance, states at the aggregate level are likely to miss the fiscal deficit target of 2.8 per cent in 2016-17 by a wide margin.
Only 12 out of 23 states will be able to take advantage of the window for additional borrowings in 2016-17 provided by the 14th Finance Commission.
Among these 12 states, two fulfilled the criterion of interest or revenue being below 10 per cent in the preceding year while four met the debt/GSDP metrics less than 25 per cent in the preceding year and six complied with both in the preceding year itself.
According to Ind-RA, aggregate capital expenditure by states in 2015-16 grew 50.5 per cent as against 20.9 per cent by the central government.
It believes that the impact of pay revision of state government employees in line with the recommendations of the Seventh Central Pay Commission will be felt only in 2017-18.
The potential impact of the pay rise on state government finances is estimated at Rs 1.58 trillion in 2017-18 (0.95 per cent of GDP).