States should focus on fiscal consolidation and improving quality of expenditure: RBI Guv Das

2023-07-06 16:10:21

Reserve Bank of India Governor Shaktikanta Das on Thursday emphasised the need for the States to focus on fiscal consolidation and improving quality of expenditure focus on fiscal consolidation and improving quality of expenditure.

At 33rd Conference of State Finance Secretaries, Das also underscored the importance of issues related to the fiscal health of States such as contingent liabilities/guarantees, among others.

Debt sustainability

The Governor highlighted the importance of debt sustainability for ensuring long-term fiscal health of the states.

The meeting reviewed, inter alia, market borrowings by the States, administration of the Consolidated Sinking Fund and Guarantee Redemption Fund, issues relating to State government guarantees, short-term financial accommodation to the States from the Reserve Bank, etc.

Productive capacities

MD Patra, in his foreword to RBI’s annual publication titled State Finances: A Study of Budgets (January 2023), had observed that going forward, increased allocations for sectors like health, education, infrastructure and green energy transition can help expand productive capacities if States mainstream capital planning rather than treating them as residuals and first stops for cutbacks in order to meet budgetary targets.

“It is worthwhile to consider creating a capex buffer fund during good times when revenue flows are strong so as to smoothen and maintain expenditure quality and flows through the economic cycle.

“To crowd in private investment, the State governments may continue to focus on creating a congenial ecosystem for the private sector to thrive,” Patra said..

States also need to encourage and facilitate higher inter-state trade and businesses to realise the full benefit of spillover effects of State capex across the country.


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Published on July 6, 2023

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