State Finances: A Study of Budgets of 2021-22

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Recently the Reserve Bank of India has released the report titled “State Finances: Study of the Budget for 2021-22”.

It is an annual publication of the Reserve Bank of India. It analyzes and evaluates the finances of state governments.

Key point:

  • According to the recommendations of the Fiscal Responsibility and Budget Management (FRBM) Review Committee, the combined debt-to-GDP ratio of states is worryingly higher than the target of 20% to be achieved by 2022-23.
  • For the year 2021-22, states have kept their gross fiscal deficit (GFD) to GDP ratio at 3.7%. AGED refers to the excess of total expenditure. A GFD occurs when the total expenditure exceeds the amount received from repayment of debt, revenue receipts (including external grants) and non-debt capital receipts.
  • However, Tier III governments in India are taking the lead in combating the pandemic by implementing prevention strategies, health care, quarantine and testing facilities, organizing vaccination camps and maintaining the supply of essential goods and services. Their financial position has come under severe stress, which is forcing them to cut expenditure and raise funds from various sources.

Recommendation:

  • In the medium term, the improvement in the financial position of the state governments will depend on the reforms in the power sector recommended by the 15th Finance Commission.
  • State Governments should constitute State Finance Commissions at regular intervals.
  • Functional autonomy of civic bodies should be increased, their governance structure should be strengthened and they should be financially empowered through higher resource availability.

Source- The Hindu

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