EUR 125.00 For Business Accounts Only

MOSL: ECOSCOPE-Fiscal deficit of states at record high in 9MFY19; Capital spending surges

** Aggregate fiscal deficit of 19 states amounted to 25.9% of the budget estimate (BE) in 3QFY19, almost double the average of 13.2% during the last five years. Consequently, fiscal deficit touched 62.5% of BE during 9MFY19 – the worst in at least the past eight years. Higher deficit was a result of weak tax receipts and higher spending. Total spending grew by a healthy 14.5% YoY in 9MFY19, led by strong growth of 23.1% in capital spending. However, growth in total receipts of 19 states lagged at 12.9% YoY during 9MFY19.

** Combined analysis of the Center and 19 states (general government) reveals that total receipts of the general government were weak in 9MFY19, as tax growth (at just 8.6%) was the weakest in seven years. Indirect taxes (incl. GST) were the key culprit, rising by a meager 5.8% YoY in 9MFY19, as against an average growth of 16.1% in the last three years. General government spending rose by 11% YoY in 9MFY19 – faster than the growth seen in receipts. As a result, fiscal deficit of the general government amounted to 91.7% of BE – the worst in at least eight years.

** Indirect tax collections in 4Q have amounted to ~44% of the collections seen during the first nine months of the fiscal during the last three years. Assuming a similar ratio for 4QFY19, we estimate that indirect taxes are likely to fall short of the BE by as much as INR2.1t in FY19. The Center has projected revised estimates for FY19 to fall short of the BE by ~INR730b. Taking this into account, the shortfall in indirect taxes is expected to amount to INR1.4t in FY19.