“If we purely look at the budgeted GSDP estimates of states like UP, WB, MP, Rajasthan and even Gujarat that shows an expansion in FY21, then the all-India GDP contraction that CSO projects at 8 per cent in FY21 would be perhaps much lesser,” Soumya Kanti Ghosh, group chief economic advisor at SBI said in the note, Wednesday.
“Thus, it clearly reignites the debate of whether having a bottom up approach to GDP estimation could be a better tool in these uncertain times,” he said.
The average fiscal deficit of 13 states analysed by SBI has been revised upwards by 170 basis points to 4.5 per cent for FY21 and it comes to 3.3 per cent for FY22. In actual terms, this comes to Rs 5.8 lakh crore for FY 21, revised upwards by Rs 1.85 lakh crore, and to Rs 5 lakh crore for FY22.
The consolidated fiscal deficit of the Centre and states is thus likely to be around 12.7 per cent of GDP, assuming that the Centre’s fiscal deficit is likely to be undershot from 9.5 per cent to 8.7 per cent of GDP in the current fiscal.
Methodology
In its note, SBI extrapolated the state-wise GSDP numbers based on their historical share for a reasonable period in India’s nominal GDP to arrive at share wise GSDP numbers for each state that are then used to predict state GSDP in FY21. These numbers are then juxtaposed against budgeted GSDP projections. These numbers are divergent across different states.
For some states the difference between GSDP estimates derived from state share and revised GSDP budget estimates provided by these states for FY21, in their recently released budgets.
The prominent states where there is a large difference between share estimates and budgeted GSDP: West Bengal, Uttar Pradesh, Madhya Pradesh and Karnataka.
On the other hand for states like Rajasthan, Jharkhand, Odisha and Kerala the difference between the budgeted GSDP and share GSDP are on the lower side. However, this can be also interpreted differently.
Per capita GDP
The budgeted GSDP projections of the states could have implications for per capita GSDP numbers, Ghosh said in the note.
While on all-India level the per capita GDP is expected to decline by almost Rs 7200 in FY21 as compared to FY20, some of the states such as Karnataka, UP, WB, indicate that their per capita GSDP will increase by more than Rs 10,000 during the same period.
Increased Debt
The outstanding debt, however, has witnessed an increase as states had to borrow more given the lack of resources available to them. For all 13 states analysed by SBI, per capita state government debt has increased.
The average per capita income of 13 major states for the 3 year period ended (FY22 budget estimates) grew by 7.1 per cent, whereas per capita debt of all these states expanded by 16.4 per cent. The notable increase in per capita debt in excess of 20 per cent is for states like Karnataka, Jharkhand, although on a low base, and Madhya Pradesh. “The per capita projected debt in FY22 is more than Rs 60,000 in states like Karnataka, Kerala and Uttarakhand,” Ghosh said.
Revenue mobilisation
Central and state goods and service tax revenue estimates show that state revenues have fallen drastically – by more than 21 per cent – from what they had anticipated in their FY21 budgets. Additionally, state VAT and sales tax, states are seeing a decline of 14.7 per cent from the budgeted figures, due to lower crude prices and reduced consumption in the initial months of FY21.
To compensate for this loss of revenue, states have curtailed capital expenditure by a sharp 11.3 per cent from that proposed initially in FY21 budget, but proposed to recover by 37 per cent in FY22.
“The decline in capital expenditure is large and even close to 30 per cent for some states in FY21,” Ghosh said.
Healthcare infra
State governments will have to take on the mantle of leadership in healthcare delivery. This pandemic presents an opportunity for states to bring about structural changes to improve the quality, accessibility, and affordability of healthcare. However, we believe that
Some of the states have missed the opportunity to take on the mantle of leadership in healthcare delivery. “Of the 13 states that we have analysed only five states have budgeted more than 20 per cent growth in expenditure on health and family welfare for FY22,” Ghosh said in the note.
This indicated that states are more reliant on Central funds for healthcare facilities, in the face of revenue decline.
