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21
January 2019
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farm loan (The Total Investment & Insurance Solutions)
Even as farm loan waivers to come at the cost
of capacity expansion in industry, such waivers have minimal impact on fiscal
deficit according to ratings firm India Ratings. This has prompted the ratings
firm to assign a stable outlook for states, many of whom have announces huge
farm loan waivers in recent months.
The ratings firm expects the aggregate fiscal
deficit of states to come in higher at 3.2% in FY'20 than the agency’s forecast
of 2.8% in its FY'19 Mid-Year Outlook. Although this is higher than the
fiscally prudent level of 3% of the gross domestic product (GDP), the ratings
firm expects that this will not pose a significant upside risk to states’
aggregate debt burden in FY20. States’ revenue account on aggregate is expected
to clock a deficit of 0.5% of GDP in FY'20 due to a higher growth in revenue
expenditure than in revenue receipts. The competitive populism, in the nature
of farm loan waivers and other financial support schemes, would take centre
stage in the runup to next general elections in May 2019, it said.
A larger impact is expected on fiscal and
revenue deficit to gross state domestic product ratios for Madhya Pradesh,
Kerala and Rajasthan, in FY20. On the expenditure side, states’ aggregate
revenue expenditure is expected to grow 18.9% y-o-y to Rs 33.3 lakh crore in
FY'20 from 11.2% in FY'19.
The announcement of farm loan waivers by
Madhya Pradesh, Chhattisgarh, Assam and Rajasthan in December 2018 extends the
list of states that have resorted to this mechanism to address farmers’
distress. Additionally, Odisha and Jharkhand announced schemes to provide
financial assistance to small and marginal farmers along the lines of the Rythu
Bandhu Scheme implemented in Telangana.
During periods of fiscal adjustment, capex
becomes a soft target for deficit control. Ind-Ra expects states’ aggregate
capex/GDP to come in marginally lower at 3.0% in FY20 from the budget estimate
of 3.07% for FY19. The agency believes capex/GDP could come in below 3% for
Tamil Nadu, Haryana, West Bengal and Kerala in FY20. Ind-Ra expects the
aggregate debt/GDP to rise to 25.1% in FY20 from the budgeted 24.3% for FY19.
The agency does not view the increase to be
detrimental to states’ debt sustainability position, although states would
channelise some part of borrowings towards meeting revenue expenditure. In
Ind-Ra’s opinion, Madhya Pradesh, Tamil Nadu and Kerala are most susceptible to
clock an increase in the debt burden in FY20. The Total Investment & Insurance Solutions
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