Renewed efforts by states towards fiscal consolidation following the global financial crisis would need to be motivated by sustained efforts to increase states’ revenues
The Reserve Bank of India (RBI) on Tuesday called for higher capital outlays, consistent fiscal consolidation and limiting the debt-GDP ratio to improve the finances of the states, whose combined gross fiscal deficit has improved by 20 bps to 2.3 per cent of GDP in FY 2014-15.
The RBI released the report titled “State Finances: A Study of Budgets of 2014-15”, an annual publication that provides data, analysis and an assessment of the finances of state governments. It serves as a primary source for disaggregated state-wise fiscal data. It also etches out the changing dynamics of fiscal federalism over the years. The theme of this year’s report is ‘Fiscal Consolidation: Assessment and Medium Term Prospects’.
The report highlights several issues of which are likely to have implications for state finances in the immediate to medium-term, such as,
The RBI released the report titled “State Finances: A Study of Budgets of 2014-15”, an annual publication that provides data, analysis and an assessment of the finances of state governments. It serves as a primary source for disaggregated state-wise fiscal data. It also etches out the changing dynamics of fiscal federalism over the years. The theme of this year’s report is ‘Fiscal Consolidation: Assessment and Medium Term Prospects’.
The report highlights several issues of which are likely to have implications for state finances in the immediate to medium-term, such as,
- Renewed efforts by states towards fiscal consolidation in the years following the global financial crisis would need to be motivated by sustained efforts to increase states’ own revenues;
- Freeing up resources for higher capital outlays, improving the quality of fiscal consolidation and setting the consolidated debt-GDP ratio of the states, including off budget liabilities on a declining trajectory;
- The rapidly growing e-commerce could contribute to states’ own revenue efforts, provided there is greater clarity in rules and procedures to enable better compliance; furthermore, windfall gains accruing over time from auctioning of natural resources need to be channelised effectively for meeting developmental needs of the mineral rich states;
- Transition from the present origin-based indirect tax regime to a destination-based tax regime under the Goods and Services Tax from April 1, 2016 is also expected to create a buoyant source of revenue for the centre and states in the medium term; and
- Improvement in fiscal marksmanship is also important for delivering on fiscal consolidation intentions, particularly by minimising the systematic bias towards over-estimation of expenditure relative to receipts.
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