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Government investments fall 14% YoY in 9MFY21…

…and combined fiscal deficit comes in at 11.7% of GDP over Apr–Dec’20

* Based on the monthly accounts available for 18 states (together accounting for ~86% of all states), total spending for states1 grew 3.1% YoY in 3QFY21, and total receipts grew just 1% YoY during the quarter. Consequently, states’ fiscal deficit stood at INR1.3t (or 2.4% of GDP2 ) in 3QFY21, the lowest in the past four quarters.

* Although states’ own receipts grew (9.8% YoY) for the first time in three quarters, transfers from the center declined for the second successive quarter. Due to weak tax collections by the center, devolution to states fell sharply for the fourth consecutive quarter; however, grants grew 16% YoY in 3QFY21. States’ own taxes grew at the fastest pace (12.3% YoY) in two years, but states’ non-tax receipts contracted once again. Within states’ spending, revenue expenditure (revex) grew 3% YoY, while capital outlays – capex excluding loans & advances (L&A) – also posted the first growth (3.3% YoY) in five quarters.

* On a 9MFY21 basis, states’ total receipts declined 11.7% YoY over Apr–Dec’20. Moreover, while states’ total spending grew in 3QFY21, it declined 2% YoY in 9MFY21, primarily led by a 23.3% fall in capital spending. Consequently, the aggregate fiscal deficit of all the states came in at INR4.6t (or ~3.3% of GDP) in 9MFY21 – 1.7x that in 9MFY20. All 18 states ran a fiscal deficit in 9MFY21. However, deficit in Odisha (OD) was less than a fifth of that in the corresponding period a year ago, while it stood at ~4.2x in Maharashtra (MH).

* A combined analysis of the central and state governments suggests that while total receipts grew 23% YoY in 3QFY21, these fell 11.3% YoY in 9MFY21. In line with receipts, total spending by the general government (GG) grew 14.3% YoY in 3QFY21, with just 2.8% YoY growth in 9MFY21. Combined revex grew 9.3% YoY in 3QFY21 (and 3.6% YoY in 9MFY21), and combined capex grew 11.3% YoY last quarter (but was down 13.8% YoY in 9MFY21). The combined fiscal deficit, thus, stood at 11.7% of GDP in 9MFY21.

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