According to a survey by a foreign brokerage, Chhattisgarh, one of the poorest states in the nation, ranks second overall in terms of fiscal health after Maharashtra and ahead of Telangana, while Bengal, Punjab, and Kerala round out the bottom three.
According to a research on the fiscal health of the main 17 states written by Kaushik Das, the chief economist at Deutsche Bank India, the top three states are Maharashtra, Chhattisgarh, and Telangana, while the lowest three states are Bengal, Punjab, and Kerala, based on the FY24 initial budget projections.
Maharashtra is ranked first according to the FY23 revised budget projections, followed by Chhattisgarh, Orissa, Telangana, and Jharkhand.
Bengal performs the poorest, while Punjab, Bihar, Rajasthan, and Uttar Pradesh round out the bottom five. Andhra Pradesh’s rating has decreased to 11th in FY23 from eighth in FY22, while Gujarat’s ranking has dropped to the seventh position from fifth.
In contrast, Punjab performs the lowest, followed by Bengal, Kerala, Rajasthan, and Bihar, the research stated, based on the updated FY22 real budget data of 17 important states. Chhattisgarh leads the list, followed by Maharashtra, Orissa, Jharkhand, and Gujarat.
Based on four major financial metrics—budget deficit, own tax revenue, state debt levels, all expressed as a percentage of each state’s unique gross state product, and lastly the ratio of interest payments to revenue receipts—the report on the fiscal health of the important 17 states is based.
The report notes that given their weak fiscal and debt metrics even before the pandemic, Punjab, Bengal, Bihar, Rajasthan, and Kerala are and will remain the most vulnerable to debt sustainability risks based on these four parameters. It also adds that a Reserve Bank report from June 2022 had previously forewarned these states.
Maharashtra, Karnataka, Tamil Nadu, and Chhattisgarh often rank in the top quartile for these important states for a longer period of time, from fiscal years 2004 to 2016.
The budgetary dynamics of several of these states have been adversely influenced by the need for accommodative agricultural loan waivers, the restructuring of the debt in the power sector, an unprecedented Covid-19 shock, and other state-specific issues.
Bengal, Bihar, Uttar Pradesh, and Rajasthan often appeared in the lowest quartile from 2004 to 2016.
According to the most recent FY22 final data, Uttar Pradesh has made modest progress but Bengal, Bihar, and Rajasthan remain in the bottom quartile. Based on the FY22 real fiscal figures, Punjab and Kerala’s fiscal health have considerably worsened.
In the meanwhile, the budget deficit of these 17 states is projected to be about 3.3% of their GSDP in FY24, down from 3.7% in FY22. This should result in a general government debt/GDP of 85%, with the Centre’s predicted debt/GDP for FY24 being 56.1%.
However, given that nominal GDP growth is anticipated to decelerate considerably from the double-digit nominal GDP growth recorded in the prior two fiscal years to 9–9.5% in the current fiscal, the research warns of a possibility that the states’ debt/GSDP ratio may be higher than the FY24 budget projection.
