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MOSL: ECOSCOPE-States’ spending growth strong in 1QFY19; Growth in general government tax receipts robust

ECOSCOPE: States’ spending growth strong in 1QFY19; Growth in general government tax receipts robust

 

• In this note, we assess the finances of 18 state governments that have published their fiscal data up to June 2018. Our analysis reveals that the aggregate fiscal deficit of these states touched a four-year high of 13.6% of budget estimates (BE) in 1QFY19. Despite a healthy increase in receipts, strong spending growth led to higher fiscal deficit in 1QFY19.
• Aggregate spending of the 18 states grew 15.1% YoY in 1QFY19, marking the fastest pace in the past six quarters. Within total spending, revenue spending grew the fastest in nine quarters, while capital spending (including loans & advances) increased for the first time in five quarters.
• Gross receipts grew at 14.3% YoY in 1QFY19-the highest pace in six quarters, while tax collection growth was tepid at 8.2%. Non-tax receipts grew much rapidly.
• The combined fiscal data of the 18 states and the center (referred to as the general government hereon) reveal that total receipts grew strongly at ~21% YoY to 17.1% of BE in - the highest in at least the past eight years. Better receipts supported higher spending, which also reached 22.8% of BE. Overall, fiscal spending is likely to support economic activity in ; however, with the general government spending budgeted to grow at the slowest pace in four years, we continue real GDP growth to remain at sub-7% in FY19.