Punjab, Rajasthan, Kerala, West Bengal and Bihar have been identified as highly stressed states on fiscal parameters, an RBI-published study said.
"For the five most indebted states, debt stock is no longer sustainable, as the debt growth has outpaced their GSDP (Gross State Domestic Product) growth in five years. New sources of risks have emerged - re-launch of old pension scheme by some states, rising expenditure on non-merit freebies, expanding contingent liabilities and the ballooning overdue of discoms (power distribution companies) - warranting strategic corrective measures", the study said.
Based on a stress test, it concluded that the fiscal conditions of the most indebted states are expected to deteriorate further, with their debt-GSDP ratio likely to remain above 35%in 2026-'27.
Decoding Spending
Revenue expenditure to capital outlay
(5-year average : 2017 - 18 to 2021 - 22)
* Madhya Pradesh 4.9
* UP 5.2
* Jharkhand 5.8
* Bihar 6.5
* Haryana 7.5
* Andhra 8.8
* Rajasthan 9.4
* West Bengal 9.7
* Kerala 12.1
* Punjab 16.6
It warned that financial risks from freebies appeared to be the highest in the case of Punjab, where the state government has expanded the list recently.
Similarly, Punjab and Rajasthan appeared most to fiscal shocks, arising out of realisation of contingent liabilities (the state's guarantee to step in due to default by a borrower), as well as a bailout of power distribution companies.
A stress test showed that a large number of states are expected to have debt-GSDP ratio of over 30% in 2026 - 27 but Punjab's level could be in excess of 45%, making it the worst performer. Rajasthan, Kerala and West Bengal too are projected to top 35%. "These states will need to undertake significant corrective steps to stabilise debt levels", the report said.
Based on last year's debt-GSDP ratio, the paper by a group of RBI officials identified 10 states including Andhra Pradesh, Jharkhand, MP, UP and Haryana as most fiscally vulnerable, before narrowing it down to five.
Among the 10 states, the paper said, own tax revenue, which is now limited to excise, property registration and motor vehicles tax, has been declining in MP, Punjab, and Kerala. Similarly, Haryana, UP, West Bengal, Kerala and Punjab are seen to have limited space for developmental spending, given that they already have committed expenditure on interest payment, pension and administrative payment, which account for over 35% of total spending.
- Times News Network
My take
It's incumbent upon the state governments to spend meaningfully and avoid sloth/flashy programs with no outcomes.
Tailpiece.
Got up at 6, the chores and was ready by 10. Earlier, performed the usual Wednesday aarathi.
Lekha and I went to Harisree department store and the fruit shop to pick up grocery, fruits and other tidbits. Hameed was our chauffeur for the first leg. Meanwhile, the soiled clothes were given a washing machinex.
A quiet evening.
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