Business Other News 28 Dec 2018 State farm loan waiv ...

State farm loan waiver to impact growth: Ind-Ra

Published Dec 28, 2018, 12:13 am IST
Updated Dec 28, 2018, 12:13 am IST
India Ratings and Research (Ind-Ra)
 India Ratings and Research (Ind-Ra)

New Delhi: The spate of loan waivers being announced by states could impact the economic growth by bringing down the overall capex of the states in the country, according to India Ratings and Research (Ind-Ra). 

The ratings agency said that the farm loan waivers that have been announced by a number of states recently will adversely impact the combined 
state government capex spending. 

“State government capex is major driver of investment growth in the Indian economy, and historically, it has been higher than capex undertaken by the Central government. It is budgeted to be higher by 37.5 per cent for FY19 and was 36.6 per cent higher as per FY18RE,” it said.

Ind-Ra said that contrary to popular belief, a significant part of the additional revenue awarded to the states by the 14th Finance Commission was spent on capex. 

As a result, it said that the combined capex of state governments increased to 3.1 per cent of GDP in FY16 from 2.4 per cent in FY15. “During the same period, the Central government’s capex increased to 1.8 per cent of GDP from 1.6 per cent of GDP,” it said.  

However, Ind-Ra said that during periods of fiscal adjustment, like the one that is bound to arise due to farm loan waivers, capex becomes a soft target for deficit control.

This has already been witnessed in the case of Maharashtra, Rajasthan and Karnataka, which had announced farm debt waivers outside the budget in FY18, it said. 

“Despite revenue receipt surpassing the budgeted amount, these states could not keep the revenue deficit at the budgeted level, as the farm loan waivers led to a rise in revenue expenditure,” it said. 

“Rajasthan and Karnataka reduced their capex by 12 per cent and 2.5 per cent, respectively, to offset the increased revenue expenditure, but these states still failed to keep fiscal deficit at the budgeted level. Meanwhile, in the case of Maharashtra, capex saw a contraction despite fiscal deficit/GSDP being lower than the budgeted figure," it added.

It pointed out that from the perspective of both capex and endowment of human resources, which are crucial for achieving sustainable growth, the role played by state governments is more crucial than generally perceived.

Location: India, Delhi, New Delhi


More From Other News