State finance ministers must watch out for 2017
State government finances could come under significant strain due to the twin burdens of UDAY scheme and 7th Pay Commission
In its mid-year economic review released in December, the central government hinted that achieving the target of keeping the fiscal deficit to 3.5% of gross domestic product in 2016-17 might be difficult, given the need to increase investment in the economy. While the central government’s budget accounts receive a lot of attention, policymakers would do well to look at state government finances, which can add significantly to government deficits over the next couple of years. This could happen due to the twin burdens of taking over huge loans of power utilities, which stood at ₹ 4.3 trillion in 2014-15, under the Ujwal Discom Assurance Yojna (UDAY), and implementation of pay hikes in keeping with the Seventh Pay Commission recommendations.
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