Covid-19 to worsen indebtedness of states despite economic rebound: S&P

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NEW DELHI: S&P Global Ratings on Friday mentioned the Covid pandemic may worsen structural deficits and indebtedness of states, regardless of a probable rebound within the financial system over the subsequent 12-24 months.
The US-based ranking company expects the nation’s financial development to stay above common over the subsequent few years and the rebound within the financial system within the present fiscal ending March 31, 2022, will feed into states’ revenues.
S&P estimates revenues of states to extend by a median of 17 per cent yearly over fiscals 2021-2023.
“The Covid-19 pandemic may worsen structural deficits and indebtedness of Indian state governments. India’s stronger development than peer nations has been a key issue underpinning the sustainability of states’ fiscal efficiency,” S&P mentioned in a report titled ‘Public Finance System Overview: Indian States’.
S&P International Rankings had minimize India’s development forecast for the present fiscal to 9.5 per cent from 11 per cent earlier.
The company lowered the expansion outlook saying {that a} extreme second Covid-19 outbreak in April and Could led sharp contraction in financial exercise, however a gradual revival is underway.
S&P mentioned it is going to be onerous for state governments to quickly scale down elevated expenditures induced by Covid-19. The pandemic has led to elevated spending on healthcare, social security and digital infrastructure.
The company believes the extraordinary help from the central authorities and the Reserve Bank of India will stay a key pillar for states’ fiscal framework and efficiency.
“A big threat for the fiscal framework and efficiency of Indian states would be the Rs 3 trillion energy sector reforms introduced in FY2021-22 finances introduced by the central authorities. Whereas particulars of the proposed reform will not be recognized but, significant state participation is probably going. The numerous linkages between the facility distribution firms (discoms) and states have led to the indebtedness of the discoms shifting to states,” S&P added.

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