RBI REPORT ON STATES ECONOMY
CONTEXT : Recently Reserve Bank of India released the report on state government budgets for 2022-23.
MAJOR HIGHLIGHTS OF RBI REPORT
- State governments have seen a significant expansion in their contingent liabilities.
CONTINGENT LIABILITIES : The obligations of a state government to repay the principal and interest payments in case a state-owned entity defaults on a loan.
- As per the report, the guarantees issued by state governments have risen from Rs 3.12 lakh crore or 2% of GDP in 2017 to Rs 7.4 lakh crore or 3.7% of GDP.
- EARLY PENSION SCHEMES: During 2000s, there was a growing realization that financing the old pension scheme would prove to be challenging. Therefore, a new pension framework was ushered in which would limit the financial burden of the state.
- As most of the states had then signed on to the new pension scheme, some states such as Rajasthan and Chhattisgarh have now chosen to revert.
- State debt-to-GDP ratio remains uncomfortably high. As per the report, the debt-to-GDP ratio has fallen from 31.1% in 2020-21 – a year when states had struggled to manage the economic fallout of the pandemic — to 29.5% in 2022-23.
As the Fiscal Responsibility and Budget Management (FRBM) review committee headed by N K Singh, had recommended a debt-to-GDP ratio of 20% for states.
- Report also finds that states are expecting to see an increase in overall revenue collection from various sources such as STATE GST, excise taxes, and sales taxes in the 2022-2023 fiscal year.
WHAT NEEDS TO BE DONE ?
- Allocation of more resources to key sectors such as health, education, infrastructure and clean energy, the states can promote economic growth and overall
- Report suggests that debt consolidation should be a priority for state governments.
- Focusing on creating a favorable environment for the private sector and ease of doing business as to attract the private investments.
- States should also encourage and facilitate higher inter-state trade and commerce to realize the full benefit of spillover effects of state capex across the country.
SYLLABUS : Prelims, Indian Economy
