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Informist, Thursday, Jul 18, 2024

--RBI paper: Himalayan states, UTs' need new revenue sources 
--RBI paper: Himalayan states, UTs' fiscal deficit widens  
 

MUMBAI – States in the Himalayan region and Union territories need to identify new revenue sources as the fiscal health index reveals that their overall fiscal position has remained under pressure in recent years, led by a sharp widening of the fiscal deficit and worsening of the debt sustainability indicators, the Reserve Bank of India's staff said in a paper today.

"As the capacity of these states/UTs to mobilize own revenue resources remains limited, they continue to receive large transfers from the centre even after the discontinuation of their special category status in 2015. These states/UTs need to identify new sources of revenue, leverage existing sources more effectively and improve their tax administration to garner higher resources," as per the paper on the 'Fiscal Performance of Himalayan States/Union Territories' in RBI's bulletin for July and does not necessarily reflect the views of the central bank.

In the last five years, the overall fiscal position of these Himalayan states showed stress and their capacity to mobilise their own tax revenues remains constrained due to the challenges arising from their economic and geographical structure.  

The debt level of the Himalayan states has been consistently higher than the other states in India due to factors like high fiscal deficit, lower economic growth, and higher cost of borrowing, the RBI paper said.

Among the different indicators of fiscal performance, the deficit and debt sustainability indicators have contributed most heavily to the recent stress on their fiscal health, suggesting a growing need for fiscal consolidation.

Since these states continue to receive higher transfers from the Centre even after the discontinuation of their special category status in 2015, which can reduce their flexibility in spending, there is a need to identify new sources of revenue, leverage existing sources effectively and improve their tax administration to garner higher resources.

This has come as the Indian government has been on the fiscal consolidation path for some time, ever since it had risen to an all-time high of 9.2% of GDP in the pandemic-hit year of 2020-21 (Apr-Mar).

In 2021, the government laid out a fiscal consolidation roadmap, under which it set a target to bring down the fiscal deficit to below 4.5% of GDP by 2025-26.

According to an Informist poll, the government is likely to lower its fiscal deficit target for the current financial year to 5.0% of GDP from 5.1% projected in the Interim Budget.   End

Reported by Subhana Shaikh

Edited by Deepshikha Bhardwaj

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