Amid Possible Economic Rebound, COVID-19 Could Hit The States Hard : S&P

The leading  US-based rating agency expects retention of the above average  economicꦿ growth of the country over the next few years. It is also expecte🌟d that the rebound in the economy in the current fiscal ending March 31, 2022, will feed into states' revenues.

S&P estimates an average of 17 per cent increase in the states revenues annually in the fiscal years of  2ꦅ021-2023.

"The Covid-19 pandemic could worsen structural deficits and indebtedness of Indian state go𒀰vernments. India's stronger growth than peer countries has been a key factor underpinning the sustainability of states' fiscal performance," S&P said in a report titled 'Public Finance System Overview: Indian States'.

S&P Global Ratings had cut India's growth fo൲recast for the current fiscal to 9.5🍃 per cent from 11 per cent earlier.

The agency lowered the growth outlook saying that a severe second Covid-19 outbreak in April and May✤ l꧙ed sharp contraction in economic activity, but a gradual revival is underway.

S&P said it will🍒 be hard for state governments to rapidly scale down elevated expenditures induced by Covid-19. The pandemic has led to increased spending on healthcare, social safety and digital infrastructure.

The agency believes the extraordinary support from the central gover♕nment and the Reserve Bank of India will remain a key pillar for states' fiscal fram🦩ework and performance.

"A significant risk for the fiscal framework and performance of Indian states will be the Rs 3 trillion power sector reforms announced in FY2021-22 budget presented by the central government. While detailඣs of the proposed reform are not known yet, meaningful state participation is likely. The significant linkages between the power distribution companies (discoms) and states have led to the indebtedness of the discoms shifting to stateܫs," S&P added.

(With PTI Inputs)