Data | Poor revenues, higher spending increased debt burden of ten Indian States

A decline in revenue and an increase in spending has led to a sharp rise in debt among States with a higher dependence on Central transfers

Updated - June 28, 2022 10:39 pm IST

Published - June 28, 2022 05:29 pm IST

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Cracks and crises, the huge iron ball tied to the businessman's leg caused the mountain to crash | Photo Credit: z_wei

The pandemic has worsened the fiscal positions of State governments. Declining tax revenue, a high share of committed expenses (interest payments, pensions, administrative expenses etc.,) and rising subsidy burdens meant that States were overtly dependent on Central transfers. A decline in revenue and an increase in spending meant a sharp rise in debt. Punjab, Rajasthan, Kerala, West Bengal, Bihar, Andhra Pradesh, Jharkhand, Madhya Pradesh, Uttar Pradesh and Haryana had the highest debt burden in 2020-21. The revenue expenditure of many of these States constitute 80-90% of the total expenses and therefore they have poor capital spending.

Fiscal deficit and debt target

Andhra Pradesh, Bihar, Rajasthan and Punjab exceeded both debt and fiscal deficit targets for 2020-21 set by the 15th Finance Commission. Kerala, Jharkhand and West Bengal exceeded the debt target, while Madhya Pradesh overshot the fiscal deficit target

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Dependency on Centre

Own tax revenue of Haryana, Kerala and Andhra Pradesh constitutes about half of their total revenue collections. The major source of revenue of other States is Central transfers. Within own tax revenue, States’ goods and services tax (SGST), States’ excise duties and sales tax are the major sources of revenue

High revenue expenditure

The share of revenue expenditure in total expenditure of these States varies in the range of 80-90 per cent. Some States like Rajasthan, West Bengal, Punjab and Kerala spend around 90 per cent in revenue accounts

The ten selected States account for half of the total revenue collected by all States and U.T.s. They also account for around half of the total expenditure by all State governments in India

Poor capital outlay

High revenue expenditure results in poor spending quality, as reflected in their high revenue spending to capital outlay ratios. Capital outlay is the money spent on acquiring assets while revenue expenditure indicates daily operations expenses like salaries and pensions.

Source: “State Finances: A Risk Analysis” by the Department of Economic and Policy Research and published by the RBI

Also read: Are freebies affecting the economic growth of India?

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