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Last updated: 13 Jun, 2023  

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Bikky Khosla | 13 Jun, 2023

A recent report published by the RBI – ‘State Finances: A Study of Budgets of 2022-23’ - provides some valuable insights about the economic condition of the country, particularly in the light of the fiscal position of state governments in India. While, overall, the report is of the view that our states have recovered considerably from the pandemic-induced stress and these developments are visible also in 2022-23, some concerns have also been pointed out, along with some crucial recommendations.

The report states that fiscal deficit of Indian states has improved from sharp deterioration resulted from the Covid-19 pandemic in 2020-21, driven mainly by ‘buoyant revenue collections and prudent expenditure management’. In contrast to sharp decline in revenue collection in 2020-21, the year 2021-22 saw a sharp rise and also in 2022-23 states have budgeted for higher revenue receipts, buoyed by SGST, excise duties, and sales tax collections.

On capital expenditure a robust growth of 31.7 percent was witnessed in 2021-22, with states budgeting for an increase in capital outlay by 38.4 percent in 2022-23. However, the state debt-to-GDP ratio is still high, though it fell from 31.1 percent in 2020-21 to 29.5 percent in 2022-23, with some states – Punjab, Tamil Nadu, Haryana and West Bengal - having the highest interest payments to revenue receipts ratio, implying less scope for these states to spend on areas like health or education.

As far as recommendations are concerned, the RBI report calls for promotion of investment by states through both direct channels - spending on physical infrastructure and human capital as well as indirect channels, attracting private investment and foreign direct investment. It also recommends states to go for increased capital outlay allocation for sectors, including infrastructure and green energy transition and to create a capex buffer fund during these good times.

I invite your opinions.
 
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