Mumbai, Feb 19 (IANS): Indian state governments' deficit is expected to come in at 3.6 per cent of the gross domestic product (GDP) in FY23, said India Ratings and Research (Ind-Ra).

The FY23 estimate is a bit higher than the 3.5 per cent revised forecast for FY22. The agency's earlier forecast for FY22 was 4.1 per cent.

"The revision was made due to better-than-expected growth in revenue receipts and higher growth in the nominal GDP in FY22," the agency said.

Besides, Ind-Ra estimates India's nominal GDP to grow 17.6 per cent YoY in FY22.

"The quality of the fiscal deficit is likely to improve in FY22 (f) and FY23 (f), after deteriorating during FY20 and FY21(RE) due to the impact of Covid-19 on the states' revenue receipts.

"The aggregate revenue receipts of the 26 states grew 25.1 per cent YoY to Rs 16.4 trillion during April-November FY22. Revenue expenditure of the 26 states grew 12 per cent YoY during April-November FY22."

The agency said that an economic recovery led to pick-up in own-revenue collection, combined with higher than budgeted tax devolution from the Centre, would moderate states' aggregate revenue deficit to 0.73 per cent of GDP.

"Even with a continuing revenue deficit, the states have greater leg-room to undertake higher capital expenditure in FY23 due to the Rs 1 trillion financial assistance by way of the 50-year interest-free loans extended by the Union government in its FY23 budget.

"The agency expects capex to GDP ratio to be higher at 3.04 per cent in FY23(f) than 2.84 per cent in FY22 (f). The fiscal deficit, therefore, would be largely channelised towards the development of state infrastructure in FY23."