The Reserve Bank of India recently released a report – “State Finances: A Study of Budgets of 2022-23” which offers a detailed analysis of the financial situation of Indian states. The report has shed light on various aspects such as trends, challenges in revenue, expenditure and the Gross Fiscal Deficit (GFD).
Gross Fiscal Deficit (GFD) Estimated Decline
According to the Reserve Bank of India’s report, the GFD of states is likely to fall from 4.1% of Gross Domestic Product (GDP) in 2020-21 to 3.4% in 2022-23. This projected decrease can be attributed to the broad-based economic recovery and an increase in revenue collections.
Insights from the Report
The comprehensive report provides an analysis of the financial position of Indian states, including the trends and challenges in their revenue and expenditure. The report indicates that states’ debt is expected to decrease to 29.5% of GDP in 2022-23, down from 31.1% in 2020-21. Despite this, it’s still higher than the 20% as recommended by the Fiscal Responsibility and Budget Management (FRBM) Review Committee in 2018.
Anticipated Increase in Non-Tax Revenue
The report predicts an increase in non-tax revenue derived from sources such as fees, fines, royalties, revenue from industries and general services. Moreover, states are expecting to see an increase in revenue from State GST, excise taxes, and sales taxes in the fiscal year 2022-2023.
Suggested Measures in the Report
Debt consolidation is suggested as a priority for state governments. This refers to the process of combining multiple debts into a single, more manageable one. It can help to lower overall interest costs, simplify payments, and make it easier to pay off the debt.
Encouraging Private Investment and Inter-State Trade
Creating a conducive environment for private investment is also recommended. This can be achieved through business-friendly policies, providing incentives and support for private investment. Facilitating higher inter-state trade and commerce to realize the full benefits of state capex across the country is also suggested.
Gross Fiscal Deficit (GFD) Defined
GFD measures the financial health of the state government. It is calculated by subtracting total revenue from total expenditure. A decrease in GFD indicates that the state government is balancing its revenue and expenditure more effectively.
Different Measures of Government Deficit
Another aspect touched upon in the report is the different measures of government deficit. These include Revenue Deficit, Fiscal Deficit, Primary Deficit and Effective Revenue Deficit. Each of these measures provides a different perspective on the government’s expenditure and revenue balance.
Past UPSC Civil Services Examination Questions
The article concludes with a past question asked in the UPSC civil services examination related to public finance. For instance, a question was asked about which action is likely to have the most inflationary effect. Another question was about the recommendations of the Fiscal Responsibility and Budget Management (FRBM) Review Committee Report.