States' gross fiscal deficit improves by 20 bps to 2.3% of GDP: RBI report

13 May 2015 Evaluate

Taking a note of improving state’s gross fiscal deficit situation, Reserve Bank of India (RBI) has pressed for need of creating fiscal space for higher capital outlays, improving the quality of fiscal consolidation and containing debt-GDP ratio to improve the finances of the states. A study of 2014-15 budgets revealed that states’ gross fiscal deficit has improved by 20 bps to 2.3% of GDP in FY 2014-15 from 2.5% in 2013-14, while states’ gross revenue surplus improved in FY15 to 0.4 per cent from zero per cent of GDP in the previous fiscal.

However, the report pointed that the fiscal deficit in FY 2011-12 stood at 1.9% of the combined GDP of the states and 2% in FY2012-13 and 2.2% (BE) in FY2013-14, while revenue surplus stood at 0.3%, 0.2%, 0.4% and 0.0% of GDP, respectively.

In absolute terms, the gross fiscal deficit of states stood at Rs 2,95,060 crore or 2.3% in 2014-15 (BE) as against Rs 2,45,050 crore or 2.2% in 2013-14 (BE), while the combined revenue surplus stood at Rs 54,170 crore or 0.4% of their GDP as against a surplus of Rs 47,730 crore or 0.4%, on the overall improvement in revenue collection.

Further, the report pointed to erosion of state revenue surpluses particularly in 2013-14 (revised estimates), from post crisis fiscal consolidation experience. It highlighted that though the fiscal deficit at the consolidated level remained within the target set by 13th Finance Commission during the period under review, state level targets were not met by some states.

The report, which asserted of states performing poorly in terms of fiscal marksmanship, reflecting over-estimation of expenditures relative to receipts, called for improvement in the reliability of their forecasts of key fiscal parameters like tax and expenditure, and macroeconomic aggregates.

RBI report has been based on the latest budget documents of 17 states, which account for 88 per cent of both the non-debt receipts and total expenditure in 2014-15 (budget estimates), the revised estimates for 2014-15 indicate deterioration in the deficit indicators as compared to the budget estimates. Nevertheless, RBI report added that information available for 17 states warrants a careful assessment of initial expectations.

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