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State govt deficits not over yet: Crisil

Crisil expects state governments’ key fiscal indicators—revenue deficit and gross fiscal deficit—to start deteriorating from 2009, after a four-year period of an improving trajectory.

The adverse effect of lower revenue growth will be accentuated by higher development and non-development expenditure.

A shortfall of even 4% in aggregate budgeted revenues for 2008-09 can wipe out the state governments’ entire revenue surplus and push them back into revenue deficits. While the impact will begin to be felt in 2008-09, the full effect of these trends will manifest in 2009-10 and thereafter.

The deterioration in fiscal indicators would adversely impact the states’ debt protection measures and overall credit risk profiles.

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