UDAY is unlikely to have a destabilising effect on fiscal consolidation: Ind-Ra

UDAY is unlikely to have a destabilising effect on fiscal consolidation: Ind-Ra

The Ujwal Discom Assurance Yojana (UDAY) is unlikely to have a destabilising effect on fiscal consolidation at an aggregate level, says credit rating agency, India Ratings and Research (Ind-Ra).

Scheme meant for revival of debt-ridden discoms, firms estimate shows that the aggregate fiscal deficit of states at 3.2 per cent of GDP in 2016-17 is expected to be marginally better than the 3.4 per cent in FY16 (revised estimates, RE), company said in release.

The aggregate impact of UDAY on fiscal deficit of 13 states that have joined UDAY till date will be 0.47 per cent of GDP in 2016-17. Report also said state finances of select states, namely Andhra Pradesh, Haryana, Jharkhand, Punjab, Rajasthan and Uttar Pradesh, will come under pressure.

Five states incurring high distribution losses that have not yet joined the UDAY scheme are Telangana, Madhya Pradesh Maharashtra, Tamil Nadu and West Bengal, it said. “Once they go ahead, state finances of even Telangana, Madhya Pradesh and Tamil Nadu will be under strain,” report said.

Agency observed that the impact of pay revision of state government employees in line with the recommendations of the Seventh Central Pay Commission will be felt only in 2017-18. The potential impact of the pay rise on state government finances is estimated at Rs 1.58 trillion in 2017-18 (0.95 per cent of GDP).

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