In the backdrop of increasing strain on the states’ finances, the situation could turn ‘tense’ for many of them, according to a study by State Bank of India.

According to the study conducted by SBI economists, even the states eligible for additional borrowings during 2017-18 have recently witnessed fiscal deterioration.

According to the 14th Finance Commission, all the states are required to keep fiscal deficit under 3 per cent of the Gross State Domestic Product (GSDP) from 2015-16 to 2019-20.

Approval for market borrowings will be given to the states only on the basis of compliance to the fiscal prudence norms prescribed by the Commission.

The norms include a lower state GSDP-debt ratio not exceeding 25 per cent in the preceding year and certain limits on interest payments/revenue receipts. “In our analysis, out of the major 17 non-special category states in the country, there were only eight states (that) satisfied the necessary conditions and at least one of the sufficient conditions, (to become) eligible for additional borrowing in 2017-18,’’ the SBI study said.

Out of the eight states, seven – Bihar, Chhattisgarh, Jharkhand, Karnataka, Madhya Pradesh, Odisha and Telangana – satisfied the required norms and are eligible to have a maximum GFD/GSDP ratio of 3.5 per cent while Gujarat only partly meets criteria and is eligible to a GFD/GSDP ratio of 3.25 per cent, as per the study.

This means that it will be tough for the remaining non-special category states such as Andhra Pradesh to raise funds.

States that have recently waived farm loans will find it difficult to raise funds without market borrowing in financing the additional burden.

“We estimate that while Karnataka have the luxury of mobilising the entire debt waiver amount through market borrowings/non-tax revenue, Maharashtra is also well positioned to mobilise ₹11,000 crore from the non-tax and remaining ₹19,000 crore from borrowings,’’ the study said.

However, Uttar Pradesh and Punjab that have also waived farm loans recently are not eligible for any relaxation for additional market borrowings during 2017-18.

All these indicates that there is pressure even on the well-off states for mobilising resources. It remains to be seen if the introduction of GST could provide a fiscal buoyancy to states, the study said.