The overall gross fiscal deficit of the states has increased to Rs. 8.70 trillion

Mumbai, Ta. 20 January 2021, Wednesday

The lockdown imposed by the Corona and the resulting economic downturn have hit the country's states through tax revenue. Due to the impact on revenue, the revenue deficit of the states is likely to quadruple in the current financial year.

The overall gross fiscal deficit of the states will widen to an all-time high of Rs 2.50 trillion or Gross State Domestic Products, according to a Crisil report.

With the recovery in the economy, there will be a phased increase in tax collection. The increase in interest expenses due to high debt burden is expected to keep the revenue deficit of the states high for the next two-three years. In the midst of the Corona epidemic, states have been forced to raise money from the market to meet revenue and infrastructure costs, which has led to an increase in their debt burden.

There is no denying the possibility of increasing the credit risk of the states as a result of the increase in debt and expenses.

The Center has allowed the states to borrow more money in the current year to meet the expenditure requirements. States have been provided an additional borrowing limit of two per cent in addition to three per cent of Gross State Domestic Products. This has led to an increase in the debt burden of the states.

Crisil's opinion has come after studying the financial condition of 14 states of the country. In the current financial year, the share of revenue deficit in the gross fiscal deficit of the states is 30 per cent as against an average of 15 per cent in the last five years.

High revenue deficits will also force states to reduce their capital expenditure. This will put pressure on maintaining borrowing limits so that the gross fiscal deficit is likely to be higher in the coming years, the report said.