Deutsche Bank Report: Maharashtra, Chhattisgarh And Telangana Shine In Fiscal Health Rankings, While Bengal, Punjab And Kerala Struggle

According to a report by a foreign brokerage, Chhattisgarh, one of the poorest states in the country, ranks second in the overall fiscal health scorecard, just behind Maharashtra.

It is ahead of Telangana, while the bottom three states are West Bengal, Punjab and Kerala.

The fiscal health report of the key 17 states, written by Kaushik Das, the chief economist at Deutsche Bank India, reveals that based on the first budget estimates for financial year 2024 (FY24), the top three states are Maharashtra, Chhattisgarh and Telangana.

On the other hand, the bottom three states in terms of fiscal health are Bengal, Punjab and Kerala.

In the ranking based on the revised budget estimates for FY23, Maharashtra takes the top spot, followed by Chhattisgarh, Orissa, Telangana and Jharkhand.

The states of Bengal, Punjab, Bihar, Rajasthan and UP have been ranked poorly in terms of various factors. Among these states, Bengal has the lowest ranking, followed by Punjab, Bihar, Rajasthan and UP.

However, there has been some improvement as Kerala has moved out of the worst five states.

On the other hand, Andhra Pradesh's ranking has dropped to 11th in FY23 from eighth in FY22, and Gujarat has slipped to the seventh rank from fifth.

The report assesses the fiscal health of the 17 key states based on four key parameters: fiscal deficit, own tax revenue, state debt levels (as a percentage of gross state domestic product), and interest payment to revenue receipts.

Considering these four parameters, the report highlights that Punjab, Bengal, Bihar, Rajasthan and Kerala are the most vulnerable to debt sustainability risks.

These states have weak fiscal and debt metrics even before the Covid-19 pandemic, and a June 2022 report by the Reserve Bank of India had also warned about their situation.

An analysis of the historical ranking of these key states over a longer time period (fiscals 2004 to 2016) reveals that Maharashtra, Karnataka, Tamil Nadu and Chhattisgarh consistently belong to the top quartile.

The fiscal dynamics of certain states have been severely impacted by factors such as the demand for farm loan waivers, power sector debt restructuring, the unprecedented Covid-19 shock, and other state-specific factors.

During the period from 2004 to 2016, the states that consistently ranked in the bottom quartile were Bengal, Bihar, UP and Rajasthan.

Based on the latest FY22 final figures, Bengal, Bihar and Rajasthan remain in the bottom quartile, but Uttar Pradesh has shown some improvement.

However, Punjab and Kerala have experienced a significant deterioration in their fiscal health, according to the actual fiscal data for FY22.