RBI asks states to improve expenditure quality

Reserve Bank of India governor Shaktikanta Das has asked state governments to focus on fiscal consolidation and improve quality of expenditure.

In June 2023, RBI’s Financial Stability Report had sounded a note of caution on the high debt of the states. At 27.9 per cent of GDP at the end of March 2023, it was higher than the 20 per cent limit recommended by the Fiscal Responsibility and Budget Management (FRBM) Review Committee (2018) and warranted further consolidation.

At a disaggregated level, a few large states have debt-to GSDP ratios exceeding 35 per cent, the report added. Das highlighted the importance of debt sustainability for ensuring long-term fiscal health of the states. He also dwelled upon issues related to the fiscal health of states such as contingent liabilities/guarantees.

The meeting reviewed market borrowings by the states, administration of the Consolidated Sinking Fund and Guarantee Redemption Fund, issues relating to states guarantees.