Reserve Bank of India (RBI) governor D Subbarao on Tuesday called on the state finance secretaries to pay more attention to fiscal consolidation with a focus on expenditure restructuring at the state level. ?There is greater need to improve the tax-GDP ratio so that debt remains sustainable,? Subbarao said while addressing a state finance secretaries conference at Mumbai.
He also pointed out that the market borrowings by the state governments has gone up, attaining a critical mass alongside huge and rising market borrowing by the Centre. ?Therefore there is need for coordinated debt management to avoid pressure on liquidity, and crowding out,? Subbarao added.
The governor highlighted that the large borrowing requirements by the government has the potential to crowd out credit to the private sector and such phenomenon will become more critical if there is fiscal slippage.
On raising government borrowings, Subbarao underlined that RBI efforts need to be complemented by states by spreading of the borrowing throughout the year and submitting a tentative calendar in advance. The governor also underlined the importance of power sector reforms so as to insulate states? finances.
He outlined the important role that both state and the Centre have in working together to control inflation. ?The governments, both at centre and states have important role in generating and promoting the supply response so that inflation could be managed within the comfortable zone and at the same time, potential output grows,? he said.
He also urged the finance secretaries to continue introducing supply enhancing measures and steps to improve storage and transportation infrastructure, promotion of R&D in agriculture, effective utilisation and improvement in irrigation facilities.