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State fiscal deficits surge in FY99 - Views on News from Equitymaster
 
 
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  • Jan 10, 2000

    State fiscal deficits surge in FY99

    The gross fiscal deficit of the states has touched a high of 4.28% of GDP in FY99. The states had a gross fiscal deficit of 2.83% of GDP in FY98. This has been reported by a leading financial daily.

    In consolidated terms (centre and states combined), the gross fiscal deficit for FY99 stood at 10.6%. This is only marginally better than the consolidated gross fiscal deficit of over 11% in FY91.

    State deficit (% of GDP at current prices)

    The Reserve Bank of India's (RBI) report highlights the fiscal plight of the state governments. It attributes the rise in deficits to the slowdown in the economy, implementation of the recommendations fifth pay commission and high interest expenditure. The situation was compounded as revenues declined due to a decline in the centres' pool of taxes and excise duties that are to be shared with the state governments. There is a wide variation in the fiscal performances of different states. Infact, just six states accounted for 55% of the combined (all states) fiscal deficit and 65% of the combined revenue deficit. This highlights the fact that few states have been largely responsible for the deterioration in state finances.

    For the overall fiscal position of the economy to perk up, the finances of both the centre and the state governments need to undergo significant improvements. The central government seems to be gearing itself for taking 'tough' decisions in order to minimise deficits. Few state governments have also made the right noises. However, unless there is a concerted effort by all state governments and the centre to control the deficits, it is unlikely that the consolidated fiscal deficit will decline significantly. This could lead to a build up of a situation where India continues to be faced with chronic fiscal deficits.

    Stern measures need to be implemented to control deficits. One of these could be a constitutional limit to the borrowing the government can take from the Reserve Bank of India. Other measures would include cutting down the size of the government and a reduction in subsidies.

     

     

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