India Ratings and Motilal Oswal Financial Services have projected a much better picture of States’ Finances. While India Ratings & Research (Ind Ra) estimated States’ fiscal deficit to moderate to 4.1 per cent during the current fiscal, Motilal Oswal said that States’ total tax collection grew by 44 per cent during first three months.

Analysing fiscal account data related with 14 States for April-June quarter, Ind-Ra said that its earlier forecast of fiscal deficit was 4.3 per cent, and now it is estimated to be 20 basis points lower. “The revenue receipts of State governments are expected to improve, backed by an economic recovery, resulting from a large section of the populace receiving vaccinations. This would lead to States further easing restrictions on business and commercial activity. The agency now expects the aggregate revenue deficit of States to come in marginally lower at 1.3 per cent of GDP in FY22 than the earlier forecast of 1.5 per cent,” the agency said in a note authored by its Associate Director, Anuradha Basumatari.

Growth in revenue receipts

The report noted that aggregate revenue receipts grew to 3.95 lakh crore, showing a growth of 30.8 per cent. Undoubtedly, the base effect had a role to play; still, the important point to note is the growth in revenue receipts by 1.5 per cent during the April-June quarter of FY22 in comparison to corresponding period of FY2019-20, which was the pre-Covid year. “The aggregate own tax and non-tax revenue receipts of 14 States grew 77 per cent year-on-year (Y-o-Y) and 46 per cent Y-o-Y, respectively, in Q1FY22, which indicates these States’ revenue collection was resilient to the disruptions from the second Covid wave,” it said.

Based on the study of finances of 16 years, the EcoScope report of Motilal Oswal Financial Services (MOFSL) reported a growth of 44.7 per cent in States’ total taxes supported by a favorable base. Last year, tax collection was down by 35.4 per cent during the first quarter. These 16 States account for 76 per cent of total spending of all States taken together. States’ total spending grew by 18 per cent. Within total spending, revenue expenditure (revex) grew modestly by 10.8 per cent, while capital spending surged by 143 per cent.

Individual analysis of States suggests that six out of 16 States – Chhattisgarh, Haryana, Kerala, Madhya Pradesh, Rajasthan and Telangana – had already achieved a quarter of their full-year fiscal deficit target in the April-June quarter. In fact, Kerala has already exhausted 74 per cent of its FY22 BE (Budget Estimate), while the fiscal deficit for the others was in the 23-31 per cent range. Two States – Jharkhand and Odisha – have run fiscal surpluses in Q1FY22, and the fiscal deficit of remaining eight States was less than 15 per cent of the Budget.

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