Revenue and Fiscal Deficits of States to be Higher
Both revenue deficit and fiscal deficit of states in FY27 are estimated to be higher than the Budget estimate and FY26 provisional actuals due to lower-than-expected tax revenue receipts and grants, amid higher capital spending.
Chennai: Both revenue deficit and fiscal deficit of states in FY27 are estimated to be higher than the Budget estimate and FY26 provisional actuals due to lower-than-expected tax revenue receipts and grants, amid higher capital spending.
Slippage in the combined fiscal deficit of the 15 states is estimated to be Rs. 11.5 lakh crore or 3.1% of GSDP in FY2027 from Rs. 11.1 lakh crore in the BE and Rs. 10.2 lakh crore in FY2026 PA.
The fiscal deficit would be funded by a mix of market borrowings and funds under capex loans.
The non-availability of any additional borrowing above the 16th FC recommended 3% of GSDP in FY2027 is expected to lead to an enforced improvement in some state’s fiscal deficit to GSDP ratio in FY2027.
Revenue deficit to remain around 0.8% of GSDP in FY2027.
The combined revenue deficit of 15 state governments in FY2027 is estimated to be Rs. 2.8 lakh crore, against the Budget Estimate of Rs. 1.3 lakh crore and FY26 Provisional Actuals of Rs. 2.6 lakh crore.
The combined revenue receipts of the 15 states may rise by 10.9% in FY2027, lower than the optimistic 23.5% expansion indicated in the BE.
Favourable base effect for SGST collections, higher retail prices of fuels-led boost to sales tax collections, positive implications of transition to the first year of the 16th FC’s award period for several states could push-up the YoY expansion in revenue receipts of the states in FY2027 to 10.9% from 8.1% in FY2026 PA.
However, a further uptick in inflation led by rise in oil prices and other commodities due to the ongoing West Asia conflict, impact of deficient and uneven monsoon rainfall in several parts of the country and other global factors could dampen consumption and the related tax revenues of the states.
While the growth of the combined states own tax revenues (SOTR) may improve by 11.9% in FY27, higher than 7.4% in FY26 PA, it will half of 22.3% growth in BE.
Healthy pick-up in SGST and sales tax collections, both of which together contribute over 60% to the SOTR, will help double-digit expansion in states’ tax devolution against the uniform 8.2% growth in FY26 PA.
Growth in grants from the Centre at 9.3% in FY2027 will be higher than 4% in FY2026 PA, but much below the ambitious 83.3% expansion projected in FY2027 BE.
On the other hand, combined capital spending of the sample states at Rs. 8.7 lakh crore in FY2027, lower than Rs 10 lakh crore anticipated in BE, but 14.1% higher than the previous year.
The capital spending by Gujarat, Haryana, Karnataka, Kerala, MP and Maharashtra in FY2027 may be nearly in line with or exceed the levels indicated by these states in their BE. END
