The aggregate indebtedness of states, as measured by debt to gross state domestic product (GSDP), is likely to remain elevated at 30-31% in FY2023, says a Crisil report.
The indebtedness of states had risen to a decadal high of 34% in fiscal 2021 before cooling a tad to around 31.5% in the fiscal ended March 31, 2022.
The rating agency’s study of the top 18 states, which account for 90 per cent of the aggregate GSDP, showed that states borrow mainly to fund deficits on the revenue account and incur capital outlays.
“Sticky revenue expenditure and the need for higher capital outlays, along with modest revenue growth, will keep borrowings up this fiscal,” the report said.
However, the Centre’s announcement in the last budget to provide special assistance of Rs 1 lakh crore to all states for capital spending will provide some respite.
It further said any slowdown in economic activity could negatively impact GSDP growth and its estimates. On the other hand, better-than-expected tax buoyancy or any extension in GST compensation payments could provide a further liquidity buffer to states, it said.
