Fall in revenue and increase in spending has led to a sharp increase in debt among states that are more dependent on central transfers.
Fall in revenue and increase in spending has led to a sharp increase in debt among states that are more dependent on central transfers.
the pandemic has gotten worse fiscal position of state governments. Decline in tax revenue, a large proportion of committed expenses (interest payments, pensions, administrative expenses etc.) and rising subsidy burden meant that states were highly dependent on central transfer, Fall in revenue and increase in spending meant a sharp increase in debt. Punjab, Rajasthan, Kerala, West Bengal, Bihar, Andhra Pradesh, Jharkhand, Madhya Pradesh, Uttar Pradesh and Haryana had the highest debt burden in 2020-21. Many of these states have revenue expenditure of 80-90% of the total expenditure and hence their capital expenditure is low.
Fiscal Deficit and Debt Targets
Andhra Pradesh, Bihar, Rajasthan and Punjab have exceeded both the debt and fiscal deficit targets for 2020-21 set by the 15th Finance Commission. Kerala, Jharkhand and West Bengal exceed debt target, while Madhya Pradesh exceeds fiscal deficit target
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dependency on the center
The own tax revenue of Haryana, Kerala and Andhra Pradesh accounts for almost half of their total revenue collection. Central transfers are the major source of revenue for other states. Within its own tax revenue, the states’ goods and services tax (SGST), state excise and sales tax are the major sources of revenue.
high revenue expenditure
The share of revenue expenditure in the 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 ten selected states account for half of the total revenue collected by all states and union territories, they account for almost half of the total expenditure by all state governments in India.
bad capital outlay
Higher revenue expenditures result in poor expenditure quality, as reflected in their higher revenue expenditure to capital outlay ratio. Capital outlay is the money spent on acquiring assets while revenue expenditure reflects daily operating expenses such as salaries and pensions.
Source: “State Finance: A Risk Analysis” by Department of Economic and Policy Research and published by RBI
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