(FE)
While the Centre reported a slippage from its fiscal deficit target in FY18, there are early indications that the state governments’ combined fiscal deficit in FY18 could be more than the estimated (BE) 2.69% of the GDP; it might even cross the 3% threshold, prescribed under their Fiscal Responsibility and Budget Management (FRBM) Acts and mandated by the 14th Finance Commission. The potential slippage is despite the burden — and the extra fiscal flexibility allowed — under the UDAY scheme for the power sector having petered out. The prospect for FY19 is not bright either as at least six states are implementing farm loan waivers and most are to factor in Pay Commission-induced salary increases for their staff.
An NIPFP paper released in December had said, “states in aggregate are expected to revert to below 3% target of deficit in FY18,” but as seven states have released their FY19 budgets recently, two — West Bengal and Rajasthan — have revised their FY18 fiscal deficit estimates considerably upwards; the former by over 1 percentage point and the latter by close to 50 basis points. Karnataka, too, has allowed the deficit to widen by 20 basis points from the budgeted level, mainly because its revenue expenditure shot up. Except Uttar Pradesh, which cut revenue spending by 7% from the budgeted level — it stuck to the deficit estimate of 3% for both this year and next — the states that have presented new budgets have been slack in containing such expenditure of a recurring variety.
Bengal’s higher deficit is primarily necessitated by a 8.2% fall in “own revenue” and 5.8% rise in capex, whereas Rajasthan’s fiscal slippage is despite a 6% capex cut. Among the other states, Chhattisgarh and Kerala have kept revised estimates of FY18 fiscal deficits more or less on a par with budget estimates, but their deficits are still above 3%. While Chhattisgarh has curbed capex by 12% to meet the targets, Kerala’s capital expenditure has conventionally been very small, compared with its budget size as the southern state spends heavily on salaries (44% of revenue expenditure). Jammu & Kashmir has traditionally been an odd man in the crowd, with the special privileges it enjoys — it cut capex by a significant 16% but is still poised to have a (revised) fiscal deficit of 5.7% in FY18, as against 4.9% last year.
