The economy is likely to grow 5.6 per cent in the next fiscal, India Ratings and Research has said. This is lower than the Government’s estimate of 6 per cent.

IMF has projected a growth rate of 5.4 per cent while NCAER says it will be 5.6 per cent. The World Bank has given most optimistic estimate of 6 per cent. Growth in 2013-14 is estimated at 4.9 per cent.

“The economic growth in FY15 (2014-15) is likely to be contributed majorly by the industrial sector, which is estimated to grow by 4.1 per cent. This is good news for centre as well state government finances,” it said in a report on public finances. State finances were likely to remain resilient to the slowdown, it said, estimating some slippage in the fiscal deficit of states, which could go up to 2.3 per cent against 2.2 per cent in 2013-14.

Value added tax (VAT) on petroleum products could pose a concentration risk for the consolidated state finances if crude oil prices decline, though this presently looks difficult. The petroleum sector contributed nearly 30 per cent (with a growth of 14.4 per cent on yearly basis) to the VAT collection of states.

Aggregate debt of states as a percentage of GDP is likely to increase to 21.7 per cent in the current fiscal from the budgeted estimate of 21.5 per cent. Despite this slippage, debt will be sustainable as the agency believes nominal growth of the economy in excess of interest rate on debt will continue to support the agency’s debt sustainability expectations. However, indirect risk such as guarantee and deficit, state PSUs' debt could impact the credit profile of some states.

It expects the liquidity of state governments to remain comfortable in 2014-15. Even in the current fiscal most states did not face difficulty due to a surge in investment in the national small savings fund.

Related Topics