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The pressure on the States' fiscal position has come from large and growing revenue and fiscal deficits in recent years.

Mumbai , July 17

THE combined debt of all the States in the country is expected to double to Rs 1,200,000 crore by 2007, according to findings by Crisil.

However, States' revenue receipts will grow at a lower rate over the next four years considering the slowdown in the Central Government's tax collections and consequently in transfers to the State Governments, Crisil has said.

According to the rating agency, States' aggregate debt levels in 2002 were "precariously high" at over 26 per cent of the gross domestic product. "Together with their guaranteed off-balance sheet borrowings, the States' aggregate debt burden was over a third of the GDP," Crisil said.

The pressure on the States' fiscal position has come from large and growing revenue and fiscal deficits in recent years. Rising State revenue deficit levels have been the largest contributor at about 60 per cent of the States' gross fiscal deficit, primarily because of interest charges on funds borrowed to meet revenue expenditure.

According to Crisil, States' indebtedness in relation to their revenue receipts would increase from 2.8 times in 2002 to 3.6 times in 2007. Annual debt-servicing obligations would also rise dramatically to Rs 63,500 crore in 2007 from an estimated Rs 25,600 crore in 2002-'03.

Crisil said it has also assumed a lower growth rate for the revenue expenditure and guarantee levels since the States have already absorbed most of the impact of the Fifth Pay Commission rise and are attempting to limit guarantee levels.

The rating agency expects States to repay a higher 5 per cent of their debt stock by 2006-'07 compared to an estimated 3.5 per cent in 2002-'03 because of the part substitution of high-cost debt with market borrowings.

However, the situation could change significantly in the event of changes in some key areas, Crisil added. "If States successfully tackle the issues of power sector subsidies and pension liabilities and undertake expenditure reform measures, the future scenario may wary significantly from past trends," it said.

Crisil has suggested urgent reform measures as the key to the future fiscal position of the States. These include controlling revenue expenditure, augmenting revenues, restructuring high-cost debt, restraining fresh guarantees and implementing reforms in the power sector and public sector undertakings.

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