Aggregate fiscal deficit of 19 states amounted to 25.9% of the budget estimate (BE) in Q3FY19, almost double the average of 13.2% during the last five years. Consequently, fiscal deficit touched 62.5% of BE during 9MFY19—the worst in at least the past eight years.

Higher deficit was a result of weak tax receipts and higher spending. Total spending grew by a healthy 14.5% y-o-y in 9MFY19, led by strong growth of 23.1% in capital spending. However, growth in total receipts of 19 states lagged at 12.9% y-o-y during 9MFY19.

The aggregate fiscal deficit number of 19 states during 9MFY19 masks the substantial differences in the fiscal deficit of individual states. Bihar’s fiscal deficit was 5.5x the full-year BE during 9MFY19, while Kerala, Rajasthan and Madhya Pradesh almost breached their full-year targets during the period.

On the other hand, the fiscal position of Uttar Pradesh, Karnataka, Jammu & Kashmir, Jharkhand and Himachal Pradesh remained quite comfortable. The largest Indian state—Maharashtra ran a fiscal surplus amounting to 25% of BE in 9MFY19.

A combined analysis of the Centre and 19 states (general government) reveals that total receipts of the general government were weak in 9MFY19, as tax growth (at just 8.6%) was the weakest in seven years. Indirect taxes (incl. GST) were the key culprit, rising by a meagre 5.8% y-o-y in 9MFY19, as against an average growth of 16.1% in the last three years. General government spending rose by 11% y-o-y in 9MFY19 – faster than the growth seen in receipts.

As a result, fiscal deficit of the general government amounted to 91.7% of BE – the worst in at least eight years.
Indirect tax collections in Q4 have amounted to 44% of the collections seen during the first nine months of the fiscal during the last three years. Assuming a similar ratio for Q4FY19, we estimate that indirect taxes are likely to fall short of the BE by as much as `2.1 trn in FY19. The Centre has projected revised estimates for FY19 to fall short of the BE by `730 bn. Taking this into account, the shortfall in indirect taxes is expected to amount to `1.4 trn in FY19.

The aggregate fiscal deficit of 19 states amounted to 25.9% of the BE in Q3FY19, as against an average of 13.2% in Q3 over the last five years. Consequently, during 9MFY19, aggregate fiscal deficit of the 19 states touched 62.5% of BE (v/s an average of 44.3% across last five years)—the worst in at least the past eight years. The Centre’s fiscal deficit, at 112.4% of BE, was also the highest in at least 19 years.

Courtesy: Financial Express