Odisha's fiscal consolidation on track
Chennai, Feb 27 : India Ratings expects minor slippage from Odisha's FY14 budget targets; however, this will not make significant impact on its fiscal profile.
The agency also feels that achievement of own tax revenues growth of 16.39% and restricting the revenue expenditure growth to 15.81% in the current challenging economic environment will be a difficult task for the state. Nonetheless, Odisha's prudent fiscal strategy has yielded results in the past.
Although Odisha's revenue surplus in FY13 revised estimate (RE) contracted from FY12 by 47.24%, it surpassed its FY13 budget estimates (BE), which is a positive aspect.
Higher federal government grants (FY13 yoy: 26.57%) aided the state to achieve the revenue surplus. Odisha projects a further decline (35.61%) in revenue surplus in FY14 (BE) from FY13 (RE).
The state moved to negative fiscal balance zone in FY13 (RE), however, it remained within Fiscal Responsibility Legislation (FRL) targets. It also exceeded FY13 (BE) fiscal deficit partially through sharp cutbacks in capital expenditure spending.
The state expects fiscal deficit/gross state domestic product (GSDP) to be 2.03% in FY14, which is within 13th Finance Commission target. India Ratings views this achievable on the back of the state's demonstrated ability to manage earlier instances of economic underperformance.
The state's advance estimates portend a real GSDP growth of 9.14% in FY13 and growth rate of 6.5% to 7% in FY14. In India Ratings' opinion, the state may slip from its FY13 estimates mentioned in its medium term fiscal policy (MTFP) - nominal GSDP growth of 15%.
This is due to the larger economic contraction in FY13 than the government has budgeted for.
Odisha through a government order discouraged the issuances of guarantee since November 2006, however if issued, to cover the principal portion alone. Nonetheless, under special case the guarantee could entail the interest component as well. India Ratings believes that the fiscal discipline imbibed through this scheme as a positive feature for the state's finances.
Revenue receipts growth fell to 13.27% in FY13 (RE) (FY12: 21.01%) and are predicted to grow at 12.47% in FY14 (BE). The state's dependence on central government increased to 52.18% in FY13 and is budgeted to remain at same level in FY14.
Royalties/mining revenues contributed 10.96% in FY13 (RE) to revenue receipts and could slip marginally to 10.75%. A significant jump (FY12: INR13.53bn, FY13: INR41.81bn) in borrowings was chiefly through market borrowings for capital purpose unlike in few states where it is heavily central government funded.
The budget pegged revenue expenditure to grow at 15.81%, the lowest since FY11.
The interest payments proportion to revenue expenditure spiked to 10.58% in FY13 and budgeted to remain at a similar level in FY14.
The budget portends a contribution of 13.64% to revenue expenditure in FY14, similar to FY13 levels for pension and general services. The state hiked capital expenditure closer to 3% of GSDP in FY13 from earlier levels of 1.5% to 2% of GSDP.
The budget expects Odisha's debt to be INR455.61bn at FY14 (BE) (15.58% of GSDP). The state continued to remain within the set FRL limits of 29.8% for FY14, which is favourable for the state finances.