Five states have to take steps to stabilise debt ranges: RBI

Bihar, Kerala, Punjab, Rajasthan and West Bengal are the 5 extremely careworn states after making an allowance for the warning indicators flashing from all the indications, a Reserve Bank of India (RBI) research has mentioned.

“We can identify a core subset of highly stressed states from among the 10 states identified by the necessary condition i.e., the debt/ GSDP ratio. The highly stressed states are Bihar, Kerala, Punjab, Rajasthan and West Bengal,” mentioned the RBI research on state funds launched final week.

It mentioned Punjab is anticipated to stay within the worst place as its debt-GSDP ratio is projected to exceed 45 per cent in 2026-27, with additional deterioration in its fiscal place. Rajasthan, Kerala and West Bengal are projected to exceed the debt-GSDP ratio of 35 per cent by 2026-27. These states might want to undertake vital corrective steps to stabilise their debt ranges.

“Based on the debt-GSDP ratio in 2020-21,4 Punjab, Rajasthan, Kerala, West Bengal, Bihar, Andhra Pradesh, Jharkhand, Madhya Pradesh, Uttar Pradesh and Haryana turn out to be the states with the highest debt burden,” the research mentioned. These 10 states account for round half of the full expenditure by all state governments in India, it mentioned.

Among the ten states, Andhra Pradesh, Bihar, Rajasthan and Punjab exceeded each debt and financial deficit targets for 2020-21 set by the fifteenth Finance Commission (FC-XV). Kerala, Jharkhand and West Bengal exceeded the debt goal, whereas Madhya Pradesh overshot the fiscal deficit goal. Haryana and Uttar Pradesh had been exceptions as they met each standards. Rajasthan, Kerala and West Bengal are projected to surpass the FC-XV targets for debt and financial deficit in 2022-23 (BE), the RBI research mentioned.

It mentioned the personal tax income of a few of these 10 states, viz., Madhya Pradesh, Punjab and Kerala, has been declining over time, making them fi scally extra weak. “For most of these states, non-tax revenue has remained volatile, dropping significantly in recent years. The decline in non-tax revenue is under general services, interest receipts and economic services,” the research mentioned.

The share of income expenditure in whole expenditure of those states varies within the vary of 80-90 per cent. “Some states like Rajasthan, West Bengal, Punjab and Kerala spend around 90 per cent in revenue accounts. This results in poor expenditure quality, as reflected in their high revenue spending to capital outlay ratios,” it mentioned.

Committed expenditure, which inter alia consists of curiosity funds, pensions and administrative bills, accounts for a good portion (over 35 per cent) of the full income expenditure in states like Haryana, Uttar Pradesh, West Bengal, Kerala and Punjab, leaving restricted fiscal house for enterprise developmental expenditure, it mentioned. “Consequently, the share of developmental expenditure in these states is considerably lower than the other states.”

According to the RBI research, the mixed losses of DISCOMs within the 5 most indebted states, viz., Bihar, Kerala, Punjab, Rajasthan and West Bengal, constituted 24.7 per cent of the full DISCOMs losses in 2019-20, whereas their mixed long-term debt was 22.9 per cent of the full DISCOM debt in 2019-20.

The 10 states recognized by the vulnerability indicators account for round half of the full expenditure by all states and UTs, it mentioned. The share of income expenditure in whole expenditure of those states varies within the vary of 80-90 per cent. Some states like Rajasthan, West Bengal, Punjab and Kerala spend round 90 per cent in income accounts, the research mentioned. “This results in poor expenditure quality, as reflected in their high revenue spending to capital outlay ratios,” the research noticed.

Although welfare-enhancing, the influence of income spending on financial exercise lasts for almost a yr. In distinction, the influence of capital outlay is stronger and lasts longer, with the height impact materialising after two-three years, it mentioned.