States’ sops could crowd out resources: RBI report ILLUSTRATION: BINAY SINHA
contraction in non-tax revenue and
Market borrowing OVERALL PICTURE grants from the Centre. The pace of
surged 32.8% in FY24 States have contained 31% of GDP at end of expansion in SGST (state goods and
their aggregate gross March 2021 to 28.5% at services tax) – the largest driver of
AATHIRA VARIER tax revenue – softened. While stamp
Mumbai, 19 December
fiscal deficit within 3% of end of March 2024 and registration fees witnessed
GDP for three consecutive Report observed that robust growth, sales tax displayed
State governments have made com- years high debt-GDP ratio, signs of recovery, the report said.
mendable improvement in fiscal Restricted revenue outstanding guarantees Moreover, states’ dependence on
consolidation by containing their deficit at 0.2% of GDP in and increasing subsidy market borrowing has increased in
aggregate gross fiscal deficit (GFD) 2022-23 and 2023-24 require States to recent years, which is budgeted at 79
within 3 per cent of gross domestic per cent in FY25. On average, market
Total outstanding persevere with fiscal
product (GDP) for three consecutive borrowings financed slightly more
years (2021-22 to 2023-24), Reserve liabilities declined from consolidation than half of the consolidated GFD of
Bank of India (RBI) report on “State states till 2016-17.
Finances — A Study of Budgets of could crowd out the resources avail- at 3.1 per cent of GDP in 2024-25. The report observed that high In 2023-24, gross market borrow-
2024-25”, said. The states have also able with them and hamper their “The analysis shows that state debt-GDP ratio, outstanding guaran- ings of states and Union Territories
restricted revenue deficit to 0.2 per capacity to build critical social and governments have demonstrated fis- tees, and the increasing subsidy bur- (UTs) surged by 32.8 per cent to ~10.07
cent of GDP in 2022-23 and 2023-24. economic infrastructure, the report cal prudence by containing their con- den require states to persevere with trillion, in line with their higher GFD.
In 2023-24, states contained their noted. “Persistently high debt levels, solidated gross fiscal deficit and rev- fiscal consolidation while laying All major states except Gujarat,
GFD at 2.9 per cent of GDP, within contingent liabilities, and the rising enue deficit, while continuing to greater emphasis on developmental Jharkhand, Madhya Pradesh, and
the Fiscal Responsibility Legislation subsidy burden emphasise the need improve the quality of expenditure,” and capital spending. Punjab saw an increase in market
(FRL) limit of 3 per cent. States have for further fiscal prudence while pri- RBI deputy governor Michael Patra Citing provisional data for April- borrowings in 2023-24.
budgeted a GFD of 3.2 per cent of oritising growth-enhancing capital said in the foreword for the report. October of FY25, the report noted “Chhattisgarh, Karnataka,
GDP in the financial year 2024-2025 spending,” the report said. States' total outstanding liabilities that states’ GFD increased to 54.6 per Rajasthan, Goa, and Uttar Pradesh,
(FY25), a marginal increase from the It said that improvement in the declined from 31.0 per cent of GDP cent of BE (Budget estimates) from which reduced their borrowings in
level witnessed a year ago, with sub- quality of expenditure was sustained, at end-March 2021 to 28.5 per cent at 48.7 per cent in the corresponding the preceding two years, together
stantial inter-state variations. with capital expenditure rising from end-March 2024 but remain above period of FY24. contributed over 50 per cent of the
At the same time, sops like free 2.4 per cent of GDP in 2021-22 to 2.8 the pre-pandemic level of 25.3 per In FY25, growth in tax revenues incremental gross borrowings in
electricity, and farm loan waiver per cent in 2023-24, and is budgeted cent (at end-March 2019). remained stable while there was a 2023-24,” the report said.
