Indebtedness of states may hit decade-high of 36% this fiscal says Crisil

The lockdown and consequent slump in economic activity would raise States’ indebtedness to at least 36% this fiscal, the highest in a decade, Crisil said in a report. It attributed the trend to “falling GST collections and sticky revenue expenditure of States.” Its conclusions came from a study of the top 18 States, which account for 90% of the aggregate GSDP.

“States’ overall revenues are estimated to decline almost 15% on-year this fiscal in line with a shrinking economy. All the revenue sources of the states will take a hit, with almost 65% of the decline attributable to a fall in State GST collections, GST compensation payments, and tax devolutions to the states from the centre’s own tax pool, which together form nearly 50% of states’ revenue receipts,” it said.

Manish Gupta, Senior Director, CRISIL Ratings, said, “Amid falling revenue receipts, states’ revenue expenditures would remain largely sticky due to high committed expenditures (related to salaries, pension and interest costs) and essential developmental expenditures [such as grants in aid, medical and labour welfare related expenses].”

“These cumulatively contribute to about 75-80% of the total revenue expenditure and will be difficult to cut down,” he said.