On November 30, 2021, the Reserve Bank of India (RBI) released its annual report namely ‘State Finances: A Study of Budgets of 2021-22’ on the theme ‘Coping with the Pandemic: A Third-Tier Dimension’.
- The report states that combined debt-to-GDP (Gross Domestic Product) ratio of states is expected to remain at 31% by end-March 2022, which is worryingly higher than the target of 20% to be achieved by 2022-23 (FY23).
- The report has been prepared in the Division of State Finances (DSF) of the Department of Economic and Policy Research (DEPR). The Report was prepared under the overall guidance of Deba Prasad Rath, Officer-in-Charge (DEPR).
What is in the report?
It analyzed the combined budget estimates (BE) of all States/Union Territories for 2021-22 vis-à-vis actual and revised (or provisional accounts) outcomes for 2019-20 and 2020-21, respectively, against the backdrop of the COVID-19 pandemic.
i.Amid COVID-19 induced slowdown, the 15th Finance Commission (FC-XV) expects the debt-GDP ratio to peak at 33.3% in 2022-23 (in view of the higher deficits in 2020-21, 2021-22 and 2022-23), and gradually decline thereafter to reach 32.5% by 2025-26.
ii.For 2021-22, states have budgeted their consolidated gross fiscal deficit (GFD) to GDP ratio at 3.7%, marking improvement from 4.7% in the revised estimates for 2020-21.
iii.In the medium term, improvements can be seen in the fiscal position of state governments by reforming the power sector as recommended by FC-XV.
- This can be done through power subsidy to farmers; preventing leakages; and improving the health of the power distribution companies (DISCOMs) by alleviating their liquidity stress in a sustainable manner.
- Timely payments of state dues to DISCOMS and, in turn, by them to Generation Companies (GENCOS) is the key to the sector’s financial health
iv.Undertaking power sector reforms will not only facilitate additional borrowings of 0.25% of GSDP (Gross State Domestic Product ) by the states but also reduce their contingent liabilities.
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About Reserve Bank of India (RBI):
Establishment– 1st April 1935
Headquarters– Mumbai, Maharashtra
Governor– Shaktikanta Das
Deputy Governors– Mahesh Kumar Jain, Michael Debabrata Patra, M. Rajeshwar Rao, T. Rabi Sankar