RBI-Sustained Increase in Revenues, A Key to Successful Fiscal Consolidation At States Level - RBI releases State Finances: A Study of Budgets of 2014-15
May, 13th 2015
Today, the Reserve Bank of India (RBI) released the report titled “State Finances: A Study of Budgets of 2014-15”, an annual publication that provides data, analysis and an assessment of the finances of state governments. It serves as a primary source for disaggregated state-wise fiscal data. It also etches out the changing dynamics of fiscal federalism over the years. The theme of this year’s report is ‘Fiscal Consolidation: Assessment and Medium Term Prospects’.
The report highlights several issues of which are likely to have implications for state finances in the immediate to medium-term, such as,
Renewed efforts by states towards fiscal consolidation in the years following the global financial crisis would need to be motivated by sustained efforts to increase states’ own revenues;
Freeing up resources for higher capital outlays, improving the quality of fiscal consolidation and setting the consolidated debt-GDP ratio of the states, including off budget liabilities on a declining trajectory;
The rapidly growing e-commerce could contribute to states’ own revenue efforts, provided there is greater clarity in rules and procedures to enable better compliance; furthermore, windfall gains accruing over time from auctioning of natural resources need to be channelised effectively for meeting developmental needs of the mineral rich states;
Transition from the present origin-based indirect tax regime to a destination-based tax regime under the Goods and Services Tax from April 1, 2016 is also expected to create a buoyant source of revenue for the centre and states in the medium term; and
Improvement in fiscal marksmanship is also important for delivering on fiscal consolidation intentions, particularly by minimising the systematic bias towards over-estimation of expenditure relative to receipts.
This publication has been prepared in the Fiscal Analysis Division (FAD) of the Department of Economic and Policy Research. The current issue along with past issues of the report is available on the RBI website (www.rbi.org.in). Comments on this publication may be sent to The Director, Fiscal Analysis Division, Department of Economic and Policy Research, Reserve Bank of India, Shahid Bhagat Singh Road, Mumbai-400001. Comments can also be sent via e-mail.