RBI flags state sops even as taxes, spend quality improve

The average buoyancy of state tax revenue rose post-pandemic to 1.4 from the pre-pandemic average of 0.86

- Gopika Gopakumar & Gireesh Chandra Prasad

India's banking regulator has flagged concerns about a slew of sops announced by several states, even as their tax revenue has grown faster than the economic growth rate after the pandemic year of FY21, and spending quality improved in favour of more productive asset creation.

"Several states have announced sops pertaining to farm loan waiver, free electricity to agriculture and households, free transport, allowances to unemployed youth and monetary assistance to women in their Budget for 2024-25," RBI said in its study of budgets of 2024-25 released on Thursday. "Such spending could crowd out the resources available with them and hamper their capacity to build critical social and economic infrastructure."