States' fiscal health has improved from sharp pandemic-induced deterioration in 2020-21: RBI report
Jan 16, 2023
Mumbai (Maharashtra) [India], January 16 : Reserve Bank of India (RBI) on Monday released a report 'State Finances: A Study of Budgets of 2022-23', an annual publication that provides information, analysis and an assessment of the finances of state governments for 2022-23 against the backdrop of actual and revised and provisional accounts for 2020-21 and 2021-22, respectively.
The report said that gross fiscal deficit (GFD) is budgeted to decline from 4.1 per cent of gross domestic product (GDP) in 2020-21 to 3.4 per cent in 2022-23.
The report found that the "fiscal health of the states had improved from a sharp pandemic-induced deterioration in 2020-21 on the back of a broad-based economic recovery resulting in high revenue collections, which means that states' GFD is budgeted to decline from 4.1 per cent of GDP in 2020-21 to 3.4 per cent in 2022-23".
It also said while states' debt is budgeted to ease to 29.5 per cent of GDP in 2022-23 as against 31.1 per cent in 2020-21, "it is still higher than 20 per cent" recommended by Fiscal Responsibility and Budget Management (FRBM) Review Committee, 2018, under the chairmanship of N K Singh, warranting prioritisation of debt consolidation.
The report also highlighted that in 2022-23, states have budgeted higher capital outlay than in 2019-20, 2020-21 and 2021-22.
Going forward, increased allocations for sectors like health, education, infrastructure and green energy transition can help expand productive capacities if states mainstream capital planning rather than treating them as residuals and first stops for cutbacks in order to meet budgetary targets.
"It is worthwhile to consider creating a capital expenditure (capex) buffer fund during good times when revenue flows are strong so as to smoothen and maintain expenditure quality and flows through the economic cycle," the report said.
To crowd in private investment, the report said the state governments might continue to focus on creating a congenial ecosystem for the private sector to thrive. States also need to encourage and facilitate higher inter-state trade and businesses to realise the full benefit of spillover effects of state capex across the country.
The theme of this year's report is 'Capital Formation in India -- The Role of States'.
