RBI warns states of fiscal slippages

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MUMBAI, MAY 9: Voicing concerns over populist measures, the Reserve Bank on Wednesday warned that income support schemes and farm loan waivers will lead to fiscal slippages for the states.
The remarks were made during a meeting between the members of the 15th Finance Commission and the RBI brass, including Governor Shaktikanta Das and the Deputy Governors, at the central bank headquarters here.
In its presentation, the RBI listed out specific factors that would drive fiscal slippages in the revised estimates of 2018-19, including “farm loan waivers and income support schemes”, an official release said.
The presentation mentioned that in the past, states’ fiscal position was stretched due to the Uday bonds for the power sector.
It can be noted that ahead of the general elections, a slew of states and also the Centre had doled out sops to the marginalised sections, including farmers and the poor.
While the BJP-led states have announced sops in the face of rural distress and agitations, 3 Congress-led ones made it a point to declare such schemes soon after taking over the office last December.
The Centre has drawn inspiration from the income support scheme of Andhra Pradesh and extended it to the poor households nationally, while the Congress is promising an assured income of Rs 72,000 per household through income support if it is voted to power, which is being dubbed as a scheme which would drain resources.
All RBI Governors have been repeatedly flagging its concerns about fiscal slippages, primarily because of its impact on inflation, its core mandate.
According to the presentation, the importance of states in the economy has increased with the shift in composition of Government finances.
“Fiscal deficit of states is budgeted to be lower in 2019-20 BE (budget estimates), but RE (revised estimates) and actuals deviate significantly (reflecting poor fiscal marksmanship),” the release said quoting the presentation.
Outstanding debt as percentage of GDP has been rising despite moderation in interest payment as percentage of revenue receipts, it added. (Courtesy: TT)