Home / Economy / States’ fiscal health better: RBI

NEW DELHI : The fiscal health of states has improved from a sharp pandemic-induced deterioration in FY21 on the back of a broad-based economic recovery, the Reserve Bank of India (RBI) said on Monday.

In its report, titled State Finances: A Study of Budgets of 2022-23, RBI said improved fiscal health also helped boost revenue collections and the states’ gross fiscal deficit is now budgeted to narrow from 4.1% of gross domestic product in FY21 to 3.4% in FY23 within the indicative target of 4% set by the centre.

While states’ debt is budgeted to ease to 29.5% of GDP in FY23 as against 31.1% in FY21, it is still higher than the 20% recommended by the FRBM Review Committee, 2018, under the chairmanship of N.K. Singh, warranting prioritisation of debt consolidation, RBI said in its annual report that provides information, analysis and an assessment of the finances of state governments for FY23 against the backdrop of actual and revised/provisional accounts for FY21 and FY22, respectively.

Another positive of consolidation of finances is increased productive capital expenditure by states. In FY23, states budgeted higher capital outlay than in FY20, FY21 and FY22. The theme of this year’s report is also Capital Formation in India - The Role of States.

Going forward, increased allocations for sectors like health, education, infrastructure and green energy transition can help expand productive capacities if states mainstream capital planning rather than treating them as residuals and first stops for cutbacks in order to meet budgetary targets, the report said.

The RBI report has also pointed at the need for states to create a capex buffer fund during good times when revenue flows are strong so as to smoothen and maintain expenditure quality and flows through the economic cycle.

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