Mumbai : RBI deputy governor BB Kanungo on Friday expressed concerns over the imbalances in state finances, and specifically on their high borrowings and the frequent farm loan waivers.

He warned that the additional expenditure in the run-up to the polls next year and implementation of the pay panel recommendations pose “downside risks” to the finances of the states.

But he ruled out this high debt levels of the states posing any systemic risks at present. “It is a matter of concern that finances of the states are showing signs of fiscal imbalances,” Kanungo said.

“Decisions such as farm loan waivers have impacted states’ fiscal position adversely,” he added. Noting that the combined deficit to GDP ratio of the states came in at 3.1 per cent in FY18, he said that this is the third year in a row when it has overshot the thresholds set under the Fiscal Responsibility and Budget Management Act.

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