Total public debt, measured as debt to government gross domestic product (GDP), is expected to remain high at 30-31% in the current fiscal year 2022-23, about the same as the previous fiscal year at around 31, 5 %. said the largest national rating agency CRISIL in its report published on November 10.
Additionally, the report noted that government revenue spending and the need for higher capital spending, along with modest revenue growth, will keep government borrowing higher this fiscal year.
However, the center’s announcement in the recent budget that it would provide all states with some Rs.1 crore in special aid for capital expenditures will provide some breathing space, he added.
CRISIL’s study of the top 18 countries generating 90% of global GDP shows that governments borrow primarily to finance revenue shortfalls and capital spending. He also noted that debt hit a decade high of 34% in fiscal 2021 (after hovering between 25% and 30% in fiscal 2016-2020), before falling slightly to 31.5%. in the fiscal year 2022.
“In fact, states achieved a small revenue bill surplus for FY2022, fueled by healthy revenue growth of nearly 25% year over year, supported by healthy GST collections, strong central government devolutions, and the resumption of the fuel sales tax. collections and support from the central government through a GST offset loan” added the rating agency that owns S&P.
On the other hand, CRISIL also said revenue expenses are expected to increase 11-12% year-on-year, similar to last fiscal year. “This is being driven by higher domestic spending (related to salaries, pensions and interest charges), essential development spending (such as grants, medical and social spending) and higher subsidies to the electricity sector, which together contribute between 85 and 90% of the total current expenditure.”
In this regard, the government’s revenue account will experience minor weakening to generate a revenue shortfall of Rs 0.8 lakh crore (0.3% of GSDP) this fiscal year. States need to borrow to fill this gap, the rating agency added.
Commenting on the research report, Anuj Sethi, Senior Director at CRISIL Ratings, said: “Total government revenue in the current fiscal year is expected to increase by around 7-9% year-on-year. Strong tax collections on government goods and services and strong centralized fiscal decentralization will also be important drivers of this exercise. But low tax collections on fuel sales, modest growth in subsidies, and an end to GST accounting after the end of June 2022 under the GST Act 2017 will slow down the increase.
In addition, CRISIL also mentioned that states need to borrow to finance spending on key infrastructure segments such as roads, irrigation, and rural development. “While states had projected ambitious growth in capex of around 40% yoy to ~Rs 6.4 crore for this fiscal year, CRISIL Ratings estimates that capex will increase by around 15-17% given history,” he added.
Furthermore, Aditya Jhaver, director, added: “As a result, total government borrowing and off-budget borrowing, such as power sector guarantees, irrigation companies, etc., is likely to decline from around $6.5 billion. Rs. to ~Rs. 66.5 crores at the end. -VAT This will keep government debt at 30-31% for the current fiscal year, although it benefits from strong nominal growth expectations from the GSDP for the current fiscal year.
However, central government assistance in the form of 50-year interest-free loans worth Rs 1 crore to states will help to partially meet the investment target. In addition, this loan will not count against the 3.5 percent GSDP borrowing limit for states this year, CRISIL concluded.