Ind-Ra Maintains Neutral Stance on Indian States' Fiscal Prospects for FY25

Ind-Ra take on States Finances: India Ratings and Research (Ind-Ra) has reaffirmed a neutral outlook on financial trajectory of Indian states for fiscal year 2024-25 (FY25). Anurha Basumatari, Director of Public Finance at Ind-Ra, emphasized containment of revenue deficits as a pivotal factor providing states with increased fiscal manoeuvrability, particularly in favour of capital expenditure.

Projections for FY25 suggest a slight improvement in aggregate revenue deficit, standing at 0.4 per cent of gross domestic product (GDP), compared to preceding fiscal year's 0.5 per cent. ditionally, Ind-Ra anticipates a marginal reduction in aggregate fiscal deficit of all states, estimating it to be 3.1 per cent of GDP, down from revised 3.2 per cent recorded in FY24.

revision in FY24's fiscal deficit was primarily attributed to lower-than-expected revenue receipts, primarily stemming from a decline in grants from central government. However, buoyant growth in tax revenue helped mitigate this decline.

Ind-Ra's analysis underscores a 9.5 per cent year-on-year growth in aggregate revenue receipts for FY24, propelled by states' tax revenue. Looking forward to FY25, agency anticipates a similar growth trajectory in revenue receipts, albeit with a noted hindrance from lesser-than-budgeted grants.

Examining budgets of 26 states (excluding Arunachal Presh and Sikkim), Ind-Ra observed a 7.4 per cent decrease in budgeted grants from centre for FY25 compared to revised estimate of FY24.

Aligned with anticipated growth in revenue receipts, Ind-Ra forecasts an 8.7 per cent year-on-year increase in revenue expenditure for FY25. Furrmore, agency expects aggregate capital expenditure (capex) to maintain its position at 2.8 per cent of GDP in FY25, consistent with previous fiscal year levels.