SYLLABUS SECTION:

WHY IN THE NEWS?

Recently, the Centre has urged chief secretaries of all states to keep a check on the increasing Cut debt burden and fiscal deficit.

MORE DETAILS:

• The government has flagged that some of the states are as big as India’s neighbours,
• They need to take quick steps to address the growing concerns about their financial health.
• RBI also highlighted that the debt-to-GSDP ratio for 18 states and UTs has grown to 31.2%
• Debt-to-GSDP (Gross State Domestic Product) ratio signifies how healthy a state is in terms of funding its expenditure without accumulating future debt.
• Fiscal Responsibility and Budget Management (FRBM) Act recommended
• A debt-to-GDP ratio of 20% for state governments (40% for the Centre) by the financial year 2022-23.
• The states with the highest debt-to-GSDP ratio in 2021-22 include Punjab with 53.3%, Rajasthan with 39.8%, West Bengal with 38.8%, and Kerala with 38.3% and Andhra Pradesh with 32.4%.
• According to the RBI report, market borrowing has reached 63.6% of the GDP of states by March 2022, which is a loan that governments raise by issuing market securities such as bonds.
• Market borrowing forms the largest component of the total outstanding debt of states and union territories.

REASONS FOR THE DEBT BURDEN:

• The rise in the debt of Indian states fuelled by the Covid-19 pandemic generated a long lockdown.
• Pre-state election freebie promises.
• Erosion of autonomous fiscal space due to GST with populist schemes.

STATE’S FINANCIAL HEALTH IMPORTANCE IN ECONOMY:

• About two-thirds of India’s public CAPEX comes from states.
• States employ five times more people than Centre.
• Rising debt could start a vicious cycle wherein states end up paying more and more towards interest payments instead of spending their revenues on creating new assets.
• Huge bearing on Nation’s economy as some states’ economies are as big as India’s neighbours like Pakistan and Sri Lanka.

Read more: UPSC CURRENT AFFAIRS

SOURCE: THE HINDU