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Main points of RBI report on State Financing
- Many states facing Fiscal risk this year i.e. 2018-19.
- Gross Fiscal Deficit (GFD) to Gross Domestic Product (GDP) ration crossed the threshold for the 3rd consecutive year.
- for 2018-19 the states have budgeted for a consolidated GFD of 26% of GDP.
- Largest share of market borrowings in Maharashtra, Uttara Pradesh, Tamil Nadu and West Bengal.
- Major borrowers among Special Category States (SCS) are Assam, Himachal Pradesh, J&K and Uttarakhand.
- GFD to GDP ratio in 2017-18 is 2.7%
- Outstanding liabilities of states grew at double digits for all years except 2014-15.
Casuses behind poor state financing
- Shortfall in own tax revenue and increased revenue expenditure.
- State budgets are under pressure
- Market borrowings are high.
Proposal to correct the short comings
- Rationalize expenditure of states
- fiscal reforms
- Adhere to FRBM target
- Larger and faster corrections in Primary Deficit (GDP- interest payments)
- Reducing leakages and enhancing efficiency of PDS (Public Distributing System)
- Improve public financial management.