Maharashtra Secures Top Position In Fiscal Health Report, Kerala Performs Worst

Chhattisgarh, one of the poorest states in the country, is the second best in the overall fiscal health scorecard after Maharashtra, and ahead of Telangana, while the bottom three are West Bengal, Punjab, and Kerala, shows a report by a foreign brokerage.

Based on the FY24 first budget estimates, the top three states are Maharashtra, Chhattisgarh and Telangana, and the bottom three states are Bengal, Punjab, and Kerala, shows a report on the fiscal health of the key 17 states, penned by Kaushik Das, the chief economist at Deutsche Bank India.

Based on the FY23 revised budget estimates, Maharashtra tops the ranking, followed by Chhattisgarh, Orissa, Telangana and Jharkhand.

In contrast, Bengal fares the worst, followed by Punjab, Bihar, Rajasthan and UP, Kerala moving out of the worst five; while Andhra' ranking has dropped to 11th in FY23 from eighth in FY22, and Gujarat has slipped to the seventh rank from fifth.

However, based on the revised FY22 actual budget data of 17 key states, Chhattisgarh tops the list followed by Maharashtra, Orissa, Jharkhand and Gujarat, and in contrast, Punjab fares the worst, followed by Bengal, Kerala, Rajasthan and Bihar, the report said.

The report on the fiscal health of the key 17 states is based on the four key fiscal parameters--fiscal deficit; own tax revenue, state debt levels, all as a percentage of their individual gross state domestic product; and finally the interest payment to revenue receipts.

Based on these four parameters, Punjab, Bengal, Bihar, Rajasthan and Kerala, are and will remain the most vulnerable to debt sustainability risks given their weak fiscal and debt metrics even prior to the pandemic, says the report, adding a June 2022 report by the Reserve Bank had also warned these states.

A historical ranking of these key states over a longer time horizon shows Maharashtra, Karnataka, Tamil Nadu, and Chhattisgarh typically in the top quartile during fiscals 2004 to 2016.

However, demand for accommodating farm loan waivers, power sector debt restructuring, an unprecedented Covid-19 shock, and other state-specific factors have impacted the fiscal dynamics of some of these states severely.

For the 2004-2016 period, the states that featured repeatedly in the bottom quartile are Bengal, Bihar, UP, and Rajasthan.

As per the latest FY22 final figures, Bengal, Bihar, and Rajasthan continue to be in the bottom quartile, but Uttar Pradesh has shown some improvement. Meanwhile, the fiscal health of Punjab and Kerala has deteriorated significantly based on the FY22 actual fiscal data.

Meanwhile, the fiscal deficit of these 17 states is estimated at around 3.3 per cent of Gross State Domestic Product (GSDP) in FY24, down from 3.7 percent in FY22. With the Centre's debt/GDP estimated at 56.1 per cent for FY24, this should result in a general government debt/GDP of 85 percent.

However, the report warns of a risk of the states' debt/GSDP ratio being higher than the FY24 budget estimate, given that nominal GDP growth is likely to moderate sharply to 9-9.5 per cent in the current fiscal from the double-digit nominal GDP growth recorded in the last two fiscals.