Ratings agency Moody's Investors Service has projected Centre's fiscal deficit to be about 3.7% of the gross domestic product (GDP) in 2019-20, which will be slightly wider than the 3.4% posted in fiscal 2019.
The government has kept a fiscal deficit target of 3.3% of the GDP for 2019-20.
The agency, in a report, said the persistent spending pressures and slower economic growth will result in continued widening of the fiscal deficit.
"At fiscal year-end March 2020 (fiscal 2020), we project government deficit will be about 3.7 per cent of gross domestic product (GDP) for the Central government and around 3 per cent for states, adding up to a general government deficit of about 6.7 per cent," the report said.
In the report, the agency cited that large fiscal deficits of some state governments will also constrain Centre's medium-term consolidation goals.
According to the agency, Indian states, which do not generate sufficient revenue sources for their spending needs, remain dependent on Central government's grants. These states have recorded larger deficits in recent years.
"The introduction of the GST replaced many indirect taxes previously levied by the states, reducing the share of own source revenue in their total revenue. As a result, states now rely on the Central government or the GST Council for a majority of their revenue, with variations across states," the report said.
"Moreover, GST revenue has been below expectations since its launch, though the Central government has agreed to compensate states for any revenue shortfalls due to the GST for five years."
States' gross borrowing needs are budgeted at Rs 7.5 trillion ($104 billion or 3.4 per cent of the national GDP) for fiscal 2020, a 28 per cent increase over fiscal 2019. levels.
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