It’s Crunch Time for Indian States’ Finances as Economy Slows
- Missing fiscal deficit goals may raise states’ borrowing costs
- Outstanding debt of states has risen over time to 25% of GDP
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India’s sharp slowdown is endangering the fiscal deficit targets of its states, threatening to unravel progress made over the past few years and driving borrowing costs higher for some of them.
The states have budgeted a consolidated fiscal deficit target of 2.6% of gross domestic product in the financial year ending March, a recent study by the Reserve Bank of India shows. While the deficit ratio has remained within the mandated threshold of 3% of GDP in the previous two years, doubts are growing about their ability to meet the latest goal.