The RBI study shows that the aggregate debt level could go beyond 25 per cent of GDP in the current year itself if off-budget guarantees are taken into account.
The
Reserve Bank of India’s annual study on state budgets underlines
weaknesses in financial position of states.
A
large number of states are running fiscal
deficit beyond the upper limit of 3 per cent of gross domestic
product, laid down by the Fiscal Responsibility and Budget Management
(FRBM) framework . Moreover, most of them are laggards in terms of
per capita income levels. Owing to the tight revenue situation and
the pressure on exchequer emanating from power utilities and farm
sector support (loan waivers and income support), states are being
compelled to borrow more .
The
RBI study shows that the aggregate debt level could go beyond 25 per
cent of GDP in the current year itself if off-budget guarantees are
taken into account. Notice that debt level surged after 2016-17 due
to UDAY.
This
has put limitations on development-related spending, as interest
payments and other compulsory spending is set to grow faster than
capital expenditure this year . Higher debt levels are associated
with lower economic growth, the study shows .
To
make the debt sustainable, revenues need to grow at 14 per cent per
year, higher than what the last three years have achieved.
Though
revised estimates for 2018-19 show a higher growth, provisional
actuals show a drop. Higher budgeted growth in 2019-20 has been
flagged down by near stagnation in the financial year to date. The
debt requirement is increasingly being catered to by market
borrowings . But the market for state
government bonds is too illiquid to be attractive with trade
happening only for less than a third of trading days in several
states .
Business Standard
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