NEW DELHI: Worried about the fiscal discipline of states, the Central government is likely to propose ‘Fiscal Responsibility and Budget Management’ guidelines, in order to ensure that respective state governments rationsalise their expenditure and adhere to fiscal deficit targets.
“The state finance is a matter of concern and at occasions, concerns had been raised in this regard. Government is planning to set stricter fiscal guidelines for the state governments, so that there is better financial discipline among them,” a top government official told TNIE.
According to the official, the move was mooted after a series of loan waivers and freebies announced by state governments with an eye on the upcoming general elections, putting lot of strain on the states’ finances.
The official said the government will formulate and discuss the guidelines during the budget session. “The government will be conducting consultations with NITI Aayog and the 15th Finance Commission in the coming days over the matter. These guidelines will be on the lines of the Fiscal Responsibility and Budget Management (FRBM) Act, which will help states to maintain fiscal discipline,” the official added.
State governments in aggregate were to revert to well below 3 per cent fiscal deficit threshold in FY18 - 2.7 per cent to be precise - but the Reserve Bank of India (RBI), analysing the revised estimates (REs) of 29 states in July, put their combined deficit in the year at 3.1 per cent.
“While 12 out of 29 states had budgeted fiscal deficits above the 3% norm in 2017-18 (BE), the REs revealed that as many as 19 exceeded the norm. In fact the year 2017-18 saw a change from the previous few years with all deficit indicators worsening for Special Category states than that of non-special category states and most SC states recording (Gross Fiscal Deficit)GFDs above the 3% mark (sic),” the RBI noted.
This, along with revenue deficit, can mount further pressure on the economy. While the states’ combined revenue deficit was projected to be zero in 2017-18 (BE), REs show this deficit at 0.4 per cent. The target for this year is a revenue surplus of 0.2 per cent.
Last week, former RBI governor Raghuram Rajan had said that farm loan waiver should not form part of the election manifestoes or promises.
Rajan had released a report - An Economic Strategy for India, which he co-authored with 12 other economists - that outlined a host of economic priorities for India over the next five years. The report had suggested sticking to the path laid out by the Fiscal Responsibility and Budget Management Review Committee and said the incentive to states must be in tune with Centre’s fiscal goals, so that consolidated fiscal deficit is brought down to 5 per cent and the general government debt to 60 per cent of the GDP.