Renewed efforts by states towards fiscal consolidation in the years following the global financial crisis would need to be motivated by sustained efforts to increase states’ own revenues, according to the Reserve Bank. In its report “State Finances: A Study of Budgets of 2014-15”, the RBI has highlighted issues which are likely to have implications for state finances in the immediate-to-medium-term.
“The rapidly growing e-commerce could contribute to states’ own revenue efforts, provided there is greater clarity in rules and procedures to enable better compliance,” it said.
“Further, windfall gains accruing over time from auctioning of natural resources need to be channelized effectively for meeting developmental needs of mineral-rich states,” it added. “The transition from the present origin-based indirect tax regime to a destination-based tax regime under the GST from April 1, 2016 is also expected to create a buoyant source of revenue for the centre and states in the medium-term,” it said. Improvement in fiscal marksmanship was also important for delivering on fiscal consolidation intentions, particularly by minimising the systematic bias towards over-estimation of expenditure relative to receipts, it noted.
The report adopts fiscal consolidation as its theme in order to evaluate the true magnitude and quality of the rule-based sub-national fiscal consolidation that has been undertaken through Fiscal Responsibility and Budget Management (FRBM) legislations. The report provides data, analysis, and an assessment of the finances of state governments. It serves as a primary source for disaggregated state-wise fiscal data. It also etches out the changing dynamics of fiscal federalism over the years.
