FREE

MOSL: Fuel or Engines (Economy)-States’ borrowings could touch INR5.5t in FY19

Fuel or Engines (Economy): States’ borrowings could touch INR5.5t in FY19; Cumulative spending budgeted to grow 9.4%, slowest in 14 years

 

“Fuel or Engines” is our new monthly product, in which we intend to expand our consumption v/s investment theme. This is an extension to our ‘India 2020’ report released in June 2016.

 Combined analysis of 10 states, which have presented their 2018-19 budgets, confirms that while lower taxes widened fiscal deficits in FY18, the combined market borrowings are revised downwards. In contrast, while FY19 deficit is budgeted to fall to 2.6% of GSDP (versus 3.1% in FY18RE), market borrowings are budgeted to grow due to (a) higher repayments, and (b) ~93% of deficit being financed by market borrowings. Our estimates suggest that gross market borrowings by all states could touch INR5.5t in FY19. This could extend pressure on state bonds. On the receipts side, states have budgeted 5-year slowest growth of 12.5% in revenue receipts for FY19, primarily due to slower growth in grants from the center (owing to compensation cess). States have budgeted a higher growth of 14.6% (versus 13.4% in FY18RE) in total taxes (almost entirely due to higher receipts estimated from ‘share in central taxes’) but much slower growth in non-tax receipts. Total spending is budgeted to grow at a 14-year slow pace of 9.4% (versus 15.6% in FY18RE), with growth of ~9.5% in both revenue and capital spending. Interestingly, after extraordinarily higher growth in rural spending in FY18 due to farm loan waivers, it is budgeted to grow only 4.6% in FY19, the slowest pace in 15 years. Finally, while Karnataka (KA) has implemented its pay commission, growth in aggregate spending on ‘salaries & wages’ in FY19BE is similar to that in FY18RE.