SBI Predicts India's Combined Fiscal Gap to Reach 12.7% in FY21

The new analysis by SBI reports that India’s combined federal and states’ budget gap in the current fiscal year will reach 12.7 percent on increased healthcare spending and a collapse in revenues amid the pandemic.

In a report published Wednesday, SBI said that there was a sharp increase in debt in the year to March 31 as states had to borrow more given their lack of resources. It said that the average fiscal deficit across 13 states reaching 4.5 percent of GDP, reports Bloomberg.

“Indian states have been at the forefront in the fight against COVID-19, but the impact of collapse in tax receipts and significant increase in expenditures have made the fiscal position of the states tenuous,” said the chief economic adviser at SBI, Soumya Kanti Ghosh.

Prime Minister Narendra Modi’s administration sees the central government’s deficit for the current fiscal year at 9.5 percent, pegging the budget gap for this year and next at higher-than-expected numbers by including off-budget borrowing by state-run enterprises. SBI sees the deficit coming in slightly smaller at 8.7 percent.

Revenues from GST and VAT fell more sharply than anticipated in state budgets for the current year, reported SBI. The result of which is that states curtailed capital spending. While some propose increased expenditure, a few have not allocated higher resources to healthcare.

SBI analysed 13 states, out of which five planned to raise spending next year on healthcare and family welfare by more than 20 percent. “This indicates that stats are more reliant on central funds for healthcare facilities, in the face of revenue decline,” the bank said in the report.

The state and the central deficits are expected to narrow next year. While state deficit is expected to be at 3.3 percent, the central deficit will stand at 6.8 percent, according to SBI. The report doesn’t provide a combined figure, which would be adjusted to remove transfers between the federal government and states.