While the state governments have achieved noticeable improvement in their fiscal position in the recent years, they would have to strive to make the fiscal consolidation durable through strengthening the revenue flows into the Budget while placing emphasis on targeting expenditures to meet the developmental objectives, said Reserve Bank of India (RBI) in its study of state finances.
The strength in overall macroeconomic conditions has resulted in higher own revenue receipts and greater fiscal capacity for the states. The buoyancy in revenue mobilisation also needs to be channelised for productive expenditure and investment. It is crucial to ensure that the process of fiscal correction does not adversely affect capital outlay and expenditure on social sectors.
The state governments may make efforts through fiscal restructuring to contain their debt at sustainable level.
With a view to improving monitoring and evaluation of programmes, the state governments may consider strengthening their evaluation capacity with a focus on outcome. They may aim at a system which is responsible and responsive for improving the efficiency and effectiveness of spending. With fiscal transparency gaining critical importance, the state governments may need to make efforts to enhance transparency by providing adequate details in their Budgets on items such as outstanding and contingent liabilities, subsidies, etc. In addition, public dissemination of fiscal data on a more frequent basis, say quarterly basis, may be considered, suggests RBI. The key factors that have enabled the improvement in fiscal position of the state governments are: (i) a rule basedprocess of fiscal correction and consolidation adopted under the FRL by a majority of state governments;(ii) buoyancy in states? own tax revenue; (iii) expenditure management by the state governments, and (iv) high current transfers from the central government.
