Curb subsidies to build critical infrastructure, RBI tells states

Says too many central schemes undermine cooperative federalism

- FE BUREAU

WITH REFORMS FOSTERING overall fiscal sustainability at the sub-national level, states need to adopt "next-generation" fiscal rules, time-bound glide paths for fiscal consolidation, and rein in subsidies and freebies, the Reserve Bank of India (RBI) said in a report on Thursday.

State governments contained their consolidated gross fiscal deficit (GFD) within 3% of gross domestic product (GDP) and their revenue deficit at 0.2% of GDP during 2022-23 and 2023-24. In 2024-25, states have budgeted a GFD of 3.2% of GDP, according to the RBI's 'State Finances: A Study of Budgets of 2024-25'.

It said states' total outstanding liabilities declined from 31% of GDP at March-end 2021 to 28.5% at March-end 2024 but remained above the pre-pandemic level of 25.3% at March 2019. The prudential level is 20% for debt-GDP for states.