Pointing out that Centre-state relations are often targeted for political considerations, finance minister Nirmala Sitharaman on Saturday said the temptation of getting into non-merit expenditure is very high in some states, which prompted the Central government to regulate their borrowings under Section 293 of the Constitution.
“(Often) loans are taken not to spend on building an asset but spend it on to give something away free to everybody. Borrowing is an intergenerational burden and the health of the states gets affected. When under Article 293 of the Constitution, the Centre discusses and raises questions, then it becomes a Centre-state issue,” Sitharaman said at an event in Thiruvananthapuram.
Recently, the Centre tightened borrowing norms for the states by including off-Budget liabilities as part of the states’ annual net borrowing ceiling, which resulted in some states losing a portion of their quota for FY23, as the Centre adjusted a portion of such off-balance sheet debt in this fiscal’s limit.
Hearing public interest litigation, the Supreme Court is currently seized of matters about political parties inducing voters through freebies and how that could be judiciously curbed.
“(Some states said) it’s none of your business. But if all states work together in a fiscally sound manner to take forward India, 2047 as a developed country is not difficult to achieve,” Sitharaman said.
Because of such reckless spending, the minister said dues of electricity distribution companies in many states are huge.
She said it is important to increase the share of capital expenditure in the budget, which the Centre has done in the last two years by substantially scaling up. It would spend about Rs 7.5 trillion in FY23 including Rs 1 trillion being given to states for their capex projects.
She also flagged that some states have even refused to avail of the capex facility as they did not want the Centre to monitor the schemes implemented in those states.
The most indebted states are expected to remain stressed for the next five years, the Reserve Bank of India said in a report recently. Debt-GSDP of Punjab was the highest at 53.3% in FY22RE, followed by Rajasthan at 39.5%, Bihar (38.6%), Kerala (37%) and West Bengal (34.4%). The general government debt to GDP is estimated to be 85-90% of GDP in FY22, as against a prudential level of 60% (40% Centre and 20% aggregate for states).