The steady fiscal gains achieved by state governments since 2000 is likely to go haywire with implementation of recommendations Sixth Pay Commission set up recently and has potential to raise primary fiscal deficit to 3.1 per cent -- thrice the current target, rating agency Crisil has said.
If, state governments implement pay and pension increase similar to those following the Fifth Pay Commission, the aggregate primary deficit levels of 21 large states would rise to as much as 3.1 per cent of their aggregate gross state domestic product (GSDP) by 2011-12, it said.
These levels of deficit are very high and may cause governments' credit profiles to come under severe pressure, Crisil chief rating officer Roopa Kudva said in the study.
The estimate is based on the premise that state governments generally follow the Central government pay hikes with increase of similar magnitude.
The study said, this level is higher than 2.6 per cent recorded in 1999-2000, the first year in which the full impact of salary and pension hikes was felt in the wake of Fifth Pay Commission.
This is more than thrice the figure of one per cent targeted by the Twelfth Finance Commission (TFC), it said.
The study is based on the assumption that the salary and pension growth caused by the Sixth Pay Commission will be similar to that caused by the last Pay Commission and the state governments will implement the recommendations with effect from April 2009.
With these assumption, the aggregate increase in salary and pension expenditures for state governments, over the three years to 2011-12 is pegged at Rs 1,75,000 crore.
Consequently, the aggregate primary deficit of states in FY'12 will be triple from Rs 50,000 crore to Rs 1,60,000 crore, it said.