RBI: Reserve Bank gave this advice to 5 states including Bihar, Punjab under the burden of debt

Pankaj Prasad
Reserve Bank of India
Reserve Bank of India

Punjab, Rajasthan, Bihar, Kerala and West Bengal need to take corrective measures by reducing expenditure on non-essential items.

There are warning signs of increasing pressure in the states and the five most indebted states - Punjab, Rajasthan, Bihar, Kerala and West Bengal - need to take corrective measures by reducing expenditure on non-essential items. This has been said in an article published in the Bulletin of the Reserve Bank of India. In an article written by a team of economists under the guidance of RBI Deputy Governor Michael Debabrata Patra, it has been said that various unforeseen shocks can affect the financial position of the states.

State governments are under pressure due to subsidies

It said, for some states, due to adverse conditions, their debt may increase significantly. This will create challenges on the fiscal front. According to the article, the slowdown in tax revenue, higher share of committed expenditure and increase in subsidy burden have put pressure on the finances of the state governments. While their finances are already under pressure due to the Kovid-19 epidemic. It said that new sources of risk have emerged due to reasons such as increasing expenditure on free goods, increasing liability and increasing dues to power distribution companies.

Know what economists said

The article cautioned that the debt levels of the five most indebted states, Bihar, Kerala, Punjab, Rajasthan and West Bengal, are not sustainable as debt growth in the last five years has dented their Gross State Domestic Product (GSDP) growth. left behind. According to the authors, stress tests suggest that with the state's debt-GSDP ratio remaining above 35 percent by 2026-27, the financial condition of most of the high debt states could worsen further. However, the central bank said that the contents of the article are the views of the authors and do not necessarily conform to the views of the RBI.

Suggestions to the states to cut non-essential expenses

In the article, as corrective measures, the state governments have been suggested to reduce the revenue expenditure by cutting down on non-essential expenditures in the short run. At the same time, there is a need to make efforts toward stabilizing the debt level in the medium term. Along with this, comprehensive reforms have been recommended in the sector to reduce the losses of power distribution companies and make them financially sustainable and operationally efficient. According to the article, increasing the share of capital expenditure in total expenditure, in the long run, will help in creating long-term assets, increasing revenue, and improving operational efficiency.