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India Ratings and Research in its latest report stated that it expects the aggregate fiscal deficit of states in the country to moderate to 4.1 per cent of GDP in the current financial year from its earlier expectation of 4.3 per cent. In line with the slight moderation in its forecast for fiscal deficit in FY22, the agency expects the aggregate debt/GDP ratio to come in lower at 32.4 per cent in FY22 as against the previous estimate of 34 per cent.

The revenue receipts of state governments are expected to improve, backed by an economic recovery, resulting from a large section of the populace receiving vaccinations. This would lead to states further easing restrictions on business and commercial activity. It said ‘We now expect the aggregate revenue deficit of states to come in marginally lower at 1.3 per cent of GDP in FY22 than the earlier forecast of 1.5 per cent of GDP’.

After analysis of information of 14 states for Q1 FY22, the agency found that the aggregate revenue receipts of these states grew 30.8 per cent to Rs 3.95 lakh crore during the period. Although the considerable improvement is due to a low base, revenue receipts grew 1.5 per cent in Q1 FY22 over the pre-COVID 19 period of Q1 FY20. The agency further said the aggregate own tax and non-tax revenue receipt of 14 states grew 77 per cent Y-o-Y and 46 per cent y-o-y, respectively, in Q1 FY22. This indicates that these states' revenue collection was resilient to the disruptions from the second Covid wave.

All states' gross market borrowings were Rs 7.88 lakh crore in FY'21. During April-July 2021, states' aggregate market borrowing was lower at Rs 1.94 lakh crore than Rs 2.1 lakh crore in April-July 2020, the report said adding that this is primarily attributable to an improvement in states' aggregate revenue receipts during Q1 FY22. The agency estimates the gross market borrowings of states, in aggregate, will increase to Rs 8.2 lakh crore in FY22 compared to its previous estimate of Rs 8.4 lakh crore. The net market borrowings would be Rs 6.2 lakh crore in FY22 compared to Rs 6.45 lakh crore in FY21.