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RBI state finance report: key highlights
The Reserve Bank of India released a report titled “State Finances: A study of budgets of 2017-18 and 2018-19” on July 12. This is an annual publication that provides details, analysis and an assessment of the finances of different state governments. Here are the key highlights of the report.
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1) States overshoot their deficit targets
The consolidated Gross Fiscal Deficit (GFD) for states overshot the budget estimates in FY18. This was mainly due to shortfalls in tax revenues and higher revenue expenditure. Farm loan waivers and higher expenditure on salaries caused a slippage in fiscal targets by 0.35% to 3.1%. For the third consecutive year, states have failed to meet their GFD targets. GFD is the difference between total revenue and total expenditure.
Related read: Understanding Fiscal Deficit & Economic Growth
2) Budgeted for correction
States have have revised their estimates for FY19. The revision has been done because modest revenue surplus of 0.2% would be eclipsed by a revenue deficit of 0.4%. This would lead to an overall GFD of 2.6% instead of 3.1% in FY18, according to the report.
3) Fiscal pressures emerging for many states
Pay revisions, interest payments and other state specific schemes like farm loan waivers have resulted in visible fiscal pressures for several states. As a result, RBI’s executive director Michael Patra has cautioned states to be more aware of expenditure management in future.
4) Increase in revenue capacity due to GST
The current decline in tax revenue for states is associated with pending accounting issues that are related to the Goods and Services Tax (GST) implementation. But once GST stabilises, it should support fiscal consolidation and boost state’s revenue capacity, according to Michael Patra.
Related read: 5 ways how GST rates affect investors here
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Rs 34,000 crore
The farm waiver proposed by the Karnataka state government in the budget is Rs 34,000 crore, according to a report by Livemint. With FY19 being an election year and many states going to the polls, there may be further farm waivers and pay commission awards. This could result in further fiscal slippage in the course of the year.
