5 states need to take steps to stabilise debt levels:RBI
BIHAR, KERALA, Punjab, Rajasthan and West Bengal are the five highly stressed states after taking into account the warning signs flashing from all the indicators, a Reserve Bank of India (RBI) study has said.
RBI study on state finance
- We can identify a core subset of highly stressed states from among the 10 states identified by the necessary condition i.e. the debt/GSDP ratio.
- It said Punjab is expected to remain in the worst position as its debt-GSDP ratio is projected to exceed 45 per cent in 2026-27, with further deterioration in its fiscal position.
- Rajasthan, Kerala and West Bengal are projected to exceed the debt-GSDP ratio of 35 per cent by 2026-27.
- These states will need to undertake significant corrective steps to stabilise their debt levels.
- Based on the debt-GSDP ratio in 2020-21, Punjab, Rajasthan, Kerala, West Bengal, Bihar, Andhra Pradesh, Jharkhand, Madhya Pradesh, Uttar Pradesh and Haryana turn out to be the states with the highest debt burden.
- These 10 states account for around half of the total expenditure by all state governments in India.
Declining Revenue
- It said the own tax revenue of some of these 10 states, viz.. Madhya Pradesh, Punjab and Kerala, have been declining over time, making them fiscally more vulnerable.
- For most of these states, non-tax revenue has remained volatile, dropping significantly in recent years.
- The decline in non-tax revenue is under general services, interest receipts and economic services.
- The share of revenue expenditure in total expenditure of these states varies in the range of 80-90 per cent.
- Some states like Rajasthan, West Bengal, Punjab and Kerala spend around 90 per cent in revenue accounts.
- It said Punjab is expected to remain in the worst position as its debt-GSDP ratio is projected to exceed 45 per cent in 2026-27, with further deterioration in its fiscal position.
Prelims Takeaway
- Fiscal deficit
- Center state fiscal federalism
- Debt-GSDP ratio