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Informist, Friday, May 29, 2026

 

--RBI: Fiscal outlook for states remains positive for FY27 

 

NEW DELHI – The Reserve Bank of India expects states' fiscal situation to remain positive in 2026-27 (Apr-Mar), the central bank said in its Annual Report 2025-26. "Fiscal outlook for states remains positive for FY27 with their consolidated gross fiscal deficit budgeted at 3.0% of gross state domestic product," the report said.

 

This comes against the backdrop of economists raising inflationary concerns about high energy prices due to the ongoing West Asia war, which may put strain on states' fiscal deficit during the year. States' fiscal deficit is expected around 3.5% of gross state domestic product in FY27, 20 basis points higher than the 3.3% projected in FY26, according to CareEdge Ratings. IDFC First Bank expects states' fiscal deficit to stay flat at 3.6% of GSDP in FY27.

 

The gross transfer to states is projected to increase by 12.2% in FY27 mainly due to transfers under centrally sponsored schemes and special assistance to states for capital investment. Moreover, the Sixteenth Finance Commission report for FY27 to FY31 has retained states' share in the divisible tax pool at 41%. 

 

"Greater emphasis has been placed on population, while the weights assigned to area, income distance and demographic performance have been trimmed. While the weight assigned to forest cover has been retained, the tax effort criterion has been removed. The Commission has introduced a new criterion, states' contribution to GDP with a weight of 10%, reflecting India's growth ambitions and the need to recognise states' role in driving national economic performance," the RBI report said.

 

The Commission has also said that existing revenue deficits largely reflect gaps in revenue mobilisation and expenditure management. "It, therefore, emphasised that continued gap-filling transfers weaken fiscal adjustment incentives, as expectations of central support can dilute efforts to enhance own revenues and rationalise spending," the report said.  End

 

Reported by Sagar Sen

Edited by Avishek Dutta

 

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