The recent report, “State Finances: A Study of State Budgets 2018” by the Reserve Bank of India (RBI) confirms what has been observed for a while; that the state of state finances is in “deep trouble” territory. Stepping back, India’s states have always had a big role to play in delivering the bijli-sadak-paani-makaan-shiksha-swasth promise. For over a decade till FY15, tax buoyancy and prudent fiscal management helped states shift a greater share of resources towards development. The share of states in development expenditure rose from about half of all development spending by the Centre and states in FY11 to over two-thirds by FY16. Increase in non-conditional transfers from the Centre post the 14th Finance Commission, also gave more autonomy to states to prioritize their spending.
Yet, even as the levers of India’s development increasingly shift to states, there has been a sharp and swift reversal of the assiduous fiscal consolidation by states over the previous decade. Observations from the RBI report confirm this. Read More
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