High debt risk over Indian states

neerajsingh18

Jun 30

High debt risk over Indian states

Team Ambitiousbaba are here with a Current Affairs Special Series. In this series, candidates will be introduced to current affairs topics daily, which will not only improve their general awareness but also will ensure that the candidates do not lack in any current affairs topic. Today's Current Affairs topic is "High debt risk over Indian states"

A study of the Reserve Bank of India has indicated a warning from the indicators of RBI for 5 highly stressed states which may create risk of debt on India. These five highly stressed states are Bihar, Kerala, Punjab, Rajasthan and West Bengal.

RBI on debt of states:

RBI named the 10 states with the highest debt burden: Punjab, Rajasthan, Kerala, West Bengal, Bihar, Andhra Pradesh, Jharkhand, Madhya Pradesh, Uttar Pradesh and Haryana on the basis of the debt-GSDP ratio of 2020-21.

These 10 states have equal to approximate half of the total expenditure by all state governments in India.

Punjab's debt-GSDP ratio is estimated to cross the 45 percent in 2026-27. Rajasthan, Kerala and West Bengal are estimated to surpass the debt-GSDP ratio of 35% by 2026-27.

RBI stated in its report that these states urgently required to take some assured steps for steady debt levels.

Reasons behind high debt level:

Bihar, Andhra Pradesh, Rajasthan and Punjab surpassed both debt and fiscal deficit targets for 2020-21 decided by the 15th Finance Commission (FC-XV).
The own tax revenue of some of these states such as Madhya Pradesh, Punjab and Kerala have been decreasing over time drawing them fiscally more vulnerable.
High Revenue Expenditure: The revenue expenditure of these states changes in the range of 80-90% which effected in poor expenditure quality, as speculated in their high revenue spending to capital outlay ratios.

Effective actions advised by RBI:

State governments have to stop their revenue expenses immediately by cutting down expenditure on non-merit goods.
Stressed effective states required to take some urgent steps toward stabilizing debt levels.
In staggered time of period states have to raise the share of capital outlays in the total expenditure. This would be build long-term assets, generate revenue and boost operational efficiency.
States also required for large-scale reforms in the power distribution sector to reduce losses and make them financially sustainable and operationally efficient.