RBI’s Report on State Finances

Main points of RBI report on State Financing

  1. Many states facing Fiscal risk this year i.e. 2018-19.
  2. Gross Fiscal Deficit (GFD) to Gross Domestic Product (GDP) ration crossed the threshold for the 3rd consecutive year.
  3. for 2018-19 the states have budgeted for a consolidated GFD of 26% of GDP.
  4. Largest share of market borrowings in Maharashtra, Uttara Pradesh, Tamil Nadu and West Bengal.
  5. Major borrowers among Special Category States (SCS) are Assam, Himachal Pradesh, J&K and Uttarakhand.
  6. GFD to GDP ratio in 2017-18 is 2.7%
  7. Outstanding liabilities of states grew at double digits for all years except 2014-15.

Casuses behind poor state financing

  1. Shortfall in own tax revenue and increased revenue expenditure.
  2. State budgets are under pressure
  3. Market borrowings are high.

Proposal to correct the short comings

  1. Rationalize expenditure of states
  2. fiscal reforms
  3. Adhere to FRBM target
  4. Larger and faster corrections in Primary Deficit (GDP- interest payments)
  5. Reducing leakages and enhancing efficiency of PDS (Public Distributing System)
  6. Improve public financial management.

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