Several States showing warning signs of stress: RBI
   Date :17-Jun-2022

REFERRING to economic crisis in Sri Lanka, a Reserve Bank article on Thursday said States are showing warning signs of building stress, and the 5 most indebted ones -- Punjab, Rajasthan, Bihar, Kerala and West Bengal -- need to take corrective measures by cutting down expenditure on non-merit goods.
State finances are vulnerable to a variety of unexpected shocks that might alter their fiscal outcomes, causing slippages relative to their budgets and expectations, said the RBI article prepared by a team of economist under the guidance of deputy governor Michael Debabrata Patra.
“The recent economic crisis in neighbouring Sri Lanka is a reminder of the critical importance of public debt sustainability. The fiscal conditions among states in India are showing warning signs of building stress,” it said.
For some States, it added, shocks may increase their debt by a significant amount, posing fiscal sustainability challenges.
Observing that the
slowdown in own tax revenue, a high share of committed expenditure and rising subsidy burdens have stretched State Government finances already exacerbated by COVID-19, the article said.
“New sources of risks have emerged in the form of rising expenditure on non-merit freebies, expanding contingent liabilities, and the ballooning overdue of discoms,” it said.
For the five most indebted States of Bihar, Kerala, Punjab, Rajasthan and West Bengal, the debt stock is no longer sustainable, as the debt growth has outpaced their Gross State Domestic Product (GSDP) growth in the last five years, it warned.
As per the article, new sources of risks have emerged from relaunch of the old pension scheme by some states; rising expenditure on non-merit freebies; expanding contingent liabilities; and the ballooning overdue of -- warranting strategic corrective measures.