It said Punjab is expected to remain in the worst position as its debt-GSDP ratio is projected to exceed 45 per cent in 2026-27, with further deterioration in its fiscal position.
Bihar, Kerala, Punjab, Rajasthan and West Bengal are the five highly stressed states after taking into account the warning signs flashing from all the indicators, a Reserve Bank of India (RBI) study has said.
“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,” said the RBI study on state finances released last week.
It said Punjab is expected to remain in the worst position as its debt-GSDP ratio is projected to exceed 45 per cent in 2026-27, with further deterioration in its fiscal position. Rajasthan, Kerala and West Bengal are projected to exceed the debt-GSDP ratio of 35 per cent by 2026-27. These states will need to undertake significant corrective steps to stabilise their debt levels.
“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 study said. These 10 states account for around half of the total expenditure by all state governments in India, it said.
Among the ten states, Andhra Pradesh, Bihar, Rajasthan and Punjab exceeded both debt and fiscal deficit targets for 2020-21 set by the 15th Finance Commission (FC-XV). Kerala, Jharkhand and West Bengal exceeded the debt target, while Madhya Pradesh overshot the fiscal deficit target. Haryana and Uttar Pradesh were exceptions as they met both criteria. Rajasthan, Kerala and West Bengal are projected to surpass the FC-XV targets for debt and fiscal deficit in 2022-23 (BE), the RBI study said.
It said the own tax revenue of some of these 10 states, viz., Madhya Pradesh, Punjab and Kerala, has been declining over time, making them fi scally more vulnerable. “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 study said.
The share of revenue expenditure in total expenditure of these states varies in the range 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 said.
Committed expenditure, which inter alia includes interest payments, pensions and administrative expenses, accounts for a significant portion (over 35 per cent) of the total revenue expenditure in states like Haryana, Uttar Pradesh, West Bengal, Kerala and Punjab, leaving limited fiscal space for undertaking developmental expenditure, it said. “Consequently, the share of developmental expenditure in these states is considerably lower than the other states.”
According to the RBI study, the combined losses of DISCOMs in the five most indebted states, viz., Bihar, Kerala, Punjab, Rajasthan and West Bengal, constituted 24.7 per cent of the total DISCOMs losses in 2019-20, while their combined long-term debt was 22.9 per cent of the total DISCOM debt in 2019-20.
The 10 states identified by the vulnerability indicators account for around half of the total expenditure by all states and UTs, it said. The share of revenue expenditure in total expenditure of these states varies in the range of 80-90 per cent. Some states like Rajasthan, West Bengal, Punjab and Kerala spend around 90 per cent in revenue accounts, the study said. “This results in poor expenditure quality, as reflected in their high revenue spending to capital outlay ratios,” the study observed.
Although welfare-enhancing, the impact of revenue spending on economic activity lasts for just about a year. In contrast, the impact of capital outlay is stronger and lasts longer, with the peak effect materialising after two-three years, it said.
Source:indianexpress.com