Madhya Pradesh Budget: Optimistic Spending Estimates Overstate Fiscal Deficit, Says India Ratings
Madhya Pradesh Budget: A sharp rise in budgeted capital expenditure may not be realistic, says India Ratings & Research.
The state of Madhya Pradesh may have overstated its expected spending while being pessimistic in its estimate of nominal growth for the coming fiscal. This, according to a research note by India Ratings & Research, may mean that the state's expected fiscal deficit is overstated.
In its budget for FY23, Madhya Pradesh pegged the fiscal deficit for FY23 at 4.6% of gross state domestic product. This is higher than the limits prescribed by the Fifteenth Finance Commission and agreed upon by the union government, which is at 4% of GSDP with an additional 0.5% permitted under certain conditions.
In FY22, the state had a fiscal deficit of 4.1% of GSDP, according to revised estimates.
India Ratings expects the state's fiscal deficit to come in lower at 4.2% of GSDP. The projections for fiscal deficit for FY23 are based on a high assumption regarding capital expenditure and pessimistic nominal GSDP growth assumption, the rating agency said in a note dated March 22.
The state's revenue deficit is seen at 0.3% of GSDP in FY23, similar to pre-pandemic levels.
Nominal GDP Growth Understated
India Ratings believes that Madhya Pradesh is underestimating nominal GSDP growth at 11.1% in FY23 compared to an estimated 12.9% in FY22.
The average GSDP growth for the state was at 14.3% during FY16-FY20, the rating agency said, adding that it expects the state's economy to grow 13.6% in nominal terms in the next fiscal.
Revenue Estimates Reasonable; Capex Growth A Stretch
For FY23, the state is expecting revenue to grow 12.13% over the revised estimates of FY22. "The average revenue expenditure growth of Madhya Pradesh during FY16-FY20 had been 13%," India Ratings said.
Non-interest revenue expenditure, which generates demand in the economy, is budgeted to grow at 12.32% in FY23. While the overall expenditure growth estimates are reasonable, the mix suggests a shift in spending.
Revenue expenditure excluding interest, salary and pension is budgeted to grow only at 8.43%, said India Ratings. Capex, however, has been estimated to grow 22.3% over the revised estimates of FY22.
"Historically, on an average, the capex growth in the state was 7.4% during FY16-FY20. The annual capex growth for FY23 appears to be steep on an already elevated base. India Ratings therefore believes the budget estimate for capex is stretched and unattainable in FY23," the note said.