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State borrowings may face pressure in coming years: Economists

News Agencies | Updated on: 9 May 2019, 17:24 IST
State Loan

A mismatch between demand and supply of state development loans can affect the cost of borrowings for state governments over the next five years, eminent economists said at a crucial meeting of the 15th Finance Commission.

Given the maturity profile of state loans, there can also be repayment pressure on these loans. Reaching the targets of Fiscal Responsibility and Budget Management (FRBM) Act will involve an extremely difficult adjustment path for a few states.


However, it is important that the Centre and state governments as a whole consolidate their debt position, they said at the meeting on Wednesday.

The economists present at the meeting were Rupa Rege Nitsure, Saugata Bhattacharya, Prachi Mishra, Samiran Chakraborty, Pranjul Bhandari, Ashu Suyash, Anjan Deb Bose, Naresh Takkar, Soumya Kanti Ghosh, Ajit Ranade, Ashima Goyal and S L Shetty.

There is a need to adopt a total view on the borrowing requirements of the consolidated public sector. This should encompass off-budget transactions, borrowings of the public sector undertakings and contingent liabilities of both the Centre and state governments.

Economists said this is important from many angles including debt sustainability, fiscal transparency and proper coordination of fiscal and monetary policies.

Some of them said there are indications that the fiscal deficit to GSDP ratio of the states taken as a whole is gradually declining after a spike seen in 2015-16 and 2016-17. However, states are at vastly different stages of debt consolidation.

Expenditure adjustments alone cannot bring about the required adjustment. Fresh revenue-raising efforts should also be made. Proceeds from auctioning of mines could be a potential source of revenue. The quality of budgeting needs to improve.

State governments should not budget for a low fiscal deficit, knowing fully well that it cannot be achieved. Projections of revenues from GST is tricky, but not impossible if one can work with the available data.

The economists made suggestions on the formula for horizontal devolution of central taxes among states and provision of grant-in-aid to state governments.

Development of a robust statistical system in the country was also suggested by some economists, according to an official statement.

-ANI

First published: 9 May 2019, 17:25 IST