Mumbai, May 8(PTI): The Reserve Bank on Wednesday warned of the rising risks to fiscal consolidation of the states as their finances are saddled with farm loan waivers, income support schemes and the Uday bonds for their power distribution companies.
The remarks were made during a meeting between the members of the 15th Finance Commission and the RBI brass, including governor Shaktikanta Das and the deputy governors, at the central bank headquarters here.
In its presentation, the RBI listed out the specific factors that will drive fiscal slippages in the revised estimates of FY19, including “the Uday scheme in the past and farm loan waivers and income support schemes in the FY19 revised estimates,” a statement from the central bank said.
It can be noted that ahead of the general elections, a slew of states and also the Centre had doled out sops to the marginalised sections, including the farmers and the poor.
While the BJP-led states have announced sops in the face of rural distress and agitations, three Congress-led ones made it a point to declare such schemes soon after taking over office last December.
Terming it as “poor fiscal marksmanship”, the RBI also went public with its concerns on deviation in revised estimates, stating that the budget estimates presented during the beginning of FY20 had indicated a lower fiscal deficit.
In a statement that comes after a jump in devolution of revenues to states, the RBI stressed the “importance of states has increased” with the shift in composition of government finances, the statement said.
It also said the outstanding debt as percentage of GDP has been rising despite moderation in interest payment as percentage of revenue receipts.
Other key issues raised by Das, who was a member of the commission before being appointed as the governor last December, included necessity of setting up state finance commissions, public sector borrowings and “continuity of finance commission”, the statement said.
In a special presentation on issues and challenges faced by states for market borrowings, the RBI discussed ways of increasing orientation of state government borrowing to markets, improving secondary market liquidity, risk asymmetry and increasing the corpus of Consolidated Sinking Fund and Guarantee Redemption Fund.
The presentation also spoke on cash management wherein the states need to improve their cash forecasting capabilities, the statement said.
The visiting Finance Commission team, led by chairman NK Singh, also had a meeting with senior economists and is likely to meet top bankers Thursday, after which it is likely to address a press conference.
