States’ financial position needs to be watched as much as the Centre’s While the aggregate financial position of states looks manageable, the finances of many individual states look weak
In recent months, there has been a growing concern over the financial health of Indian state governments. The Prime Minister has been raising concerns over the worsening of state finances and has cautioned them against distributing revadis or freebies. Despite these concerns, we continue to see some political parties promising more revadis on being elected.
In 2003, the central government implemented the Fiscal Responsibility and Budget Management (FRBM) Act. Under FRBM, the central government will target to reduce its fiscal deficit to 3 percent of GDP and eliminate the revenue deficit. In the period 2005-20, the average of the two deficit targets shows how far the Centre has been from the target.
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