HEADLINES:
October 19 2019
‘Bihar outgrew others in FY18 GDP’
22 January 2019

After five years, State rose to clock 11.3% growth; A.P. registered 11.2%, says report

Bihar and Andhra Pradesh led the pack among States in terms of GDP growth in financial year 2017-18, clocking 11.3% and 11.2% growth, respectively, compared with the national GDP growth of 6.7% for the year, according to a report by Crisil.

According to the report, 12 of the 17 general category States grew faster than the national growth rate.

However, it noted that this growth was not equitable, with the gap between the per capita incomes in low-income and high-income States widening over the last five years.

“In fiscal 2018, Bihar, Andhra Pradesh, and Gujarat were top-rankers in terms of GSDP growth among the 17 non-special States considered in our analysis,” the report said. “Jharkhand, Kerala, and Punjab were at the bottom.”

The analysis found that between the financial years 2012-13 and 2016-17, Gujarat, Madhya Pradesh and Karnataka were the fastest growing states, on average.

While all three managed to maintain their GSDP growth higher than the all-India GDP growth in 2018, only Gujarat remained in the top three. Madhya Pradesh and Karnataka both saw their rankings slip to 9 and 4, respectively.

The States at the bottom, similarly, saw a reversal of fortunes. West Bengal, Jharkhand and Bihar had ranked at the bottom in the past five years. In financial year 2017-18, however, Bihar rose to the top spot and West Bengal rose to the sixth rank, with a growth of 9.1%, significantly stronger than the national GDP growth rate. Jharkhand, however, remained at the bottom.

“In Gujarat and Karnataka, manufacturing was the main driver, while in Madhya Pradesh, agriculture and allied activities drove growth on average,” the report said. “Among the laggards, West Bengal was dragged down by mining, Jharkhand by electricity and other utilities.”

On the fiscal front, the report noted that most veered off the Fiscal Responsibility and Budget Management Act (FRBM) line of maintaining their fiscal deficits at 3% of their respective state GDPs.

“With little fiscal legroom for the Centre, States are now the new engines of government spending [over 65% in total government spending],” the Crisil report said.

Capex in State spending

“Rajasthan, Jharkhand and Uttar Pradesh topped the tally in proportion of capex in state spending in the past three years. But most states are not spending as they ought to, in areas such as health, irrigation, and education.”

“States must also be wary of their debt profiles,” Dipti Deshpande, senior economist at Crisil, said. “While the FRBM Act had helped states recover their fiscal health considerably, recent trends show they are slipping. Debt ratios have risen in many States—with the assimilation of Ujwal Discom Assurance Yojana (UDAY), farm loan waivers, and Pay Commission hikes.”

The combined fiscal deficit of States crossed the 3% of GSDP threshold, in both fiscals 2016 and 2017. This improved in fiscal 2018 to 3.1%, but this was still higher than the FRBM limit, and also the 2.7% of GSDP budgeted for the year, the report noted.

Looking ahead, in a separate report, India Ratings and Research (Ind-Ra) said that it expected the aggregate fiscal deficit of the States to come in at 3.2% in financial year 2019-20, which is higher than what it forecast in its FY19 Mid-Year Outlook.

“Although this is higher than the fiscally prudent level of 3% of the gross domestic product (GDP), Ind-Ra believes this will not pose a significant upside risk to States’ aggregate debt burden in FY20,” the report said. India Ratings added that the “competitive populism” in the form of farm loan waivers and other financial support schemes would likely take centre stage in the run-up to the general elections in May 2019.

“A larger impact is expected on fiscal and revenue deficit to gross state domestic product ratios for Madhya Pradesh, Kerala and Rajasthan, among non-special category States, in FY20,” the report said.

 

 

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