Twelve major state governments including Maharashtra, Punjab and Gujarat may have to go for an aggregate cut of Rs 2.5-2.7 trillion in their budgeted capital spending in the current fiscal to make up for shortfall in revenue due to COVID-19 pandemic, rating agency Icra said in a report.
The other states include Andhra Pradesh, Haryana, Karnataka, Kerala, Rajasthan, Tamil Nadu, Telangana, Uttar Pradesh and West Bengal.
"Twelve major state governments may have to undertake an aggregate cut of Rs 2.5-2.7 trillion in their budgeted capital spending in FY2021, on account of the pandemic-induced strain to their revenue receipts," Icra said.
It has projected the aggregate debt of these 12 states to deteriorate sharply to 28.9 per cent of Gross State Domestic Product (GSDP) in FY2021 from 21.9 per cent of GSDP in FY2019, and an estimated 22.3 per cent of GSDP in
FY2020. According to Icra's group head (corporate sector ratings) Jayanta Roy, "The pandemic has dealt a sharp revenue shock to the state governments in the current fiscal. "While the gap in GST compensation is largely proposed to be financed through additional borrowings, the expected substantial shortfall in central tax devolution would severely restrict the ability of the states to undertake growth-reviving capital expenditure in FY2021," Roy added.
Given their limited flexibility to curtail or defer revenue spending, the agency's projections reveal a sharp widening of the combined revenue deficit of the states in its sample to Rs 5.8 trillion, or 3.9 per cent of its estimate of GSDP in FY2021, from the level of Rs 82,200 crore budgeted by these states for FY2021. Roy said funding a revenue deficit of this magnitude would absorb a huge part of the enhanced borrowing limit of the state governments, leaving many of them with little option other than substantially compressing capital expenditure.