ICRA report suggests that states may breach the fiscal deficit limits due to election expenses and populist measures which include farm loan waivers, Economic Times has reported . This comes in the wake of stringent measures taken by the centre to maintain fiscal discipline in spite of high crude oil prices.

"Given the factors such as funding of crop loan waivers, election-related spending and the flood relief will see the states miss their fiscal consolidation targets," the ICRA report said. The states’ fiscal deficits are funded through state development loans (SDLs).

This comes in spite of Reserve Bank of India estimate that said that the state’s fiscal deficit may go down to 2.6 per cent from 3.1 per cent based on budget estimates of the states. Further, it said that the states may face fiscal slippages if they don’t alter their capital expenditures.

"But a reduction in the capital spending will be an unfavourable outcome, which may impair the quality of expenditure. In contrast, higher-than-budgeted revenue, which is likely following the recent amendments related to IGST and GST compensation cess, and a back-ended pickup in headline SGST collections, will be an encouraging development," Jayanta Roy of ICRA highlighted the downside of reducing capital expenditure to contain fiscal deficit.