States fail to meet fiscal deficit target on farm loan waivers, GST: RBI

Higher expenditure on salaries and farm loan waivers, coupled with a revenue shortfall on GST implementation, led to a slippage of 0.35 per cent in states' fiscal targets to 3.1 per cent in 2017-18, the RBI said today.

This is the third consecutive year where the states have failed to meet their gross fiscal deficit (GFD) target, the central bank said, adding this comes despite expectations of an improvement on higher devolution from the Centre.

For FY19, states are hoping for a 0.2 per cent revenue surplus as against a revenue deficit of 0.4 per cent as per the revised estimates, which will lead to an overall GFD of 2.6 per cent, against 3.1 per cent in FY18, it said.

At a country-wide level, farm loan waivers alone contributed to a third of the overall slippage worries, with a 0.05 per cent slippage of the overall 0.13 per cent on revenue expenditure, the RBI said in its study on state finances based on state budgets.

The apex bank reiterated its concerns on the "moral hazard" farm loan waivers, saying their track record for improving productivity is "unproven".

Moreover, studies suggest that the debt waivers have also led to a shift to informal sources of finance, it said, adding that they also possess a risk to inflation.

Starting with Andhra Pradesh and Telangana in 2014, a slew of states including Tamil Nadu, Maharashtra, Uttar Pradesh, Punjab and now Karnataka have an...

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