Halister News

(Bloomberg) -- India’s states are likely to present higher fiscal deficit estimates in their budgets for next fiscal year, particularly those committed to participate in UDAY scheme, economists Taimur Baig and Kaushik Das write in note today.

• Cites recent budgets outlined by states of Rajasthan and Uttar Pradesh that estimated their fiscal deficits to rise to 5.6% and 4.0% of GDP, respectively, in FY17 after incorporating impact of UDAY bonds, from revised estimates of 3.5% and 2.9% in FY16; NOTE: UDAY bonds are special bonds related to power sector restructuring
• Expects cumulative fiscal deficit of all states to be at least 3% of GDP in FY17, which would be deterioration of about 0.5% of GDP from FY16 levels
• Sees two risks: if power distribution cos. continue to suffer losses, those losses would have to be incorporated as part of fiscal deficit calculation, which would affect overall outlook of state finances; second risk is from a potential rise in state govt wage bill
• Says increased market borrowings of state govts would likely continue to be a drag on federal bond yields