FREE

MOSL: ECOSCOPE | UP Budget-Farm loan waiver weighs on capex plan-Expects extraordinary support from the Center

​ECOSCOPE | UP Budget: Farm loan waiver weighs on capex plan; Expects extraordinary support from the Center

• Notwithstanding the burden of the recently announced farm loan waiver and the 7th Pay Commission (PC), Uttar Pradesh (UP) has budgeted for marginal fiscal consolidation in FY18 based on ambitious growth in tax receipts and a sharp decline in capital expenditure. Fiscal deficit is budgeted to narrow to 3.0% of GSDP, from 3.2% (4.4% incl. UDAY) in FY17 and 4.1% (5.3%) in FY16.
  
• Total receipts are expected to grow 19% in FY18 on account of six-year-high growth of ~24% in states' own taxes and a 40% increase in grants from the Centre. Although UP is expected to benefit from GST implementation due to its orientation toward consumption, such high growth assumptions are debatable, in our view.
  
• Further, while revenue spending is budgeted to grow at the 13-year-highest level of ~25% owing to the farm loan waiver and the 7th PC, capital spending is budgeted to decline by ~30% - the worst in 13 years.
  
• Finally, the state expects to borrow INR392b from the market in FY18, up ~5% from FY17. It also implies that market borrowings will finance 91% of UP's fiscal deficit this year.