Revenue deficit of 18 states jump to 285% in Q1, fiscal deficit at 40.7%: Ind-Ra

Weighed down by sharp fall in revenue collections and central grants amidst rising expenditure to fight the coronavirus pandemic, collective revenue deficit of 18 states spiked to 285 per cent of Budget Estimates (BE) in April-June quarter of the current fiscal as against 12.9 per cent a year ago, reveals a report by India Ratings (Ind-Ra).

As per the report, the fiscal deficit, gap between the total expenditure and receipts, of the 18 largest states in India stood at 40.7 per cent of BE in Q1 as against 13.4 per cent in the year ago quarter.

The lower revenue and higher expenditure indicated that the state government's finances remained under stress due to the coronavirus pandemic-led nationwide lockdown, which impacted revenue collections.

For April-June period, the revenue receipts data of only 18 states were available, which showed that their revenue receipts were collectively 18.41 per cent lower on year-on-year basis against revenue expenditure growth of 11.7 per cent YoY. However, there was significant variation among states. Except Himachal Pradesh, Chhattisgarh, Nagaland and Odisha, all other states witnessed a higher double-digit reduction in their revenue receipts. Few states such as Andhra Pradesh, Meghalaya, Sikkim, Tripura and Uttarakhand witnessed just the opposite - a higher YoY revenue receipt in June quarter of FY21.

Although most of the states witnessed significantly higher revenue deficit in Q1 FY21 versus Q1 FY20, few select states such as Odisha, Jharkhand, Himachal Pradesh and Uttarakhand, despite the COVID-19 induced fiscal stress, recorded a revenue surplus during the first quarter of the current fiscal.

Collectively, 18 states reduced their expenditure on salary and pension by 10.5 per cent YoY and subsidies by 39.9 per cent YoY in June quarter, but expenditure on public health and administrative measures pushed expenses under 'other expenditure' head up by 40.1 per cent YoY. While the expenditure cut on salary and pension is more pronounced in case of Tamil Nadu, Kerala and Nagaland, the reduction in subsidy is more pronounced in case of Chhattisgarh, Haryana, Jharkhand, and Uttarakhand, Ind-Ra said.

An analysis of the Q1 financials of Indian states showed significant stress both on the revenue and expenditure sides. However, states relied on expenditure compression, devolution from the central government and higher market borrowings to remain fiscally afloat. The Reserve Bank of India's (RBI) liquidity window (special drawing facility/ways and means advances/overdraft) was used quite sparingly by states to tide over the COVID-19 pandemic-induced fiscal crisis. States that have used this window so far this fiscal are either those which have been using these facilities even in FY20 or earlier due to perpetual liquidity issues, such as Andhra Pradesh, Punjab, Kerala, Himachal Pradesh, Telangana, West Bengal, or smaller states such as Nagaland, Manipur and Mizoram. The states such as Maharashtra, Bihar, Tamil Nadu, Uttar Pradesh, Madhya Pradesh, Rajasthan, Karnataka, Jharkhand and Odisha did not use the liquidity window at all in Q1 FY21, the report said.

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