Deteriorating Health of States’ Finances

The Reserve Bank of India’s annual study of the State budgets has highlighted three important factors which will guide the finances of the State governments in the medium term. These are Goods and Services taxes (GST), greater devolution of resources through statutory transfers from the Centre, and adherence to rule-based fiscal policy.

The Scenarco

• The deterioration in the consolidated fiscal position of States reflected in the Gross Fiscal Deficit (GFD) to GDP ratio in 2014-15 (2.6%) and 2015-16 (3.6%) resulted in the worsening of the average position of the last five years (2011-2016) at 2.5% as against 2.1% in the ....