RBI warns of fiscal slippage

Mumbai: The Reserve Bank on Wednesday warned of the rising risks to fiscal consolidation of the states as their finances are saddled with farm loan waivers, income support schemes and the Uday bonds for their power distribution companies. The remarks were made during a meeting between the members of the 15th Finance Commission and the RBI brass, including governor Shaktikanta Das and the deputy governors, at the central bank headquarters. In its presentation, the RBI listed out the specific factors that will drive fiscal slippages in the revised estimates of FY19, including “the Uday scheme in the past and farm loan waivers and income support schemes in the FY19 revised estimates,” the PIB said.

It can be noted that ahead of the general elections, a slew of states and also the Centre had doled out sops to the marginalised sections, including the farmers and the poor. While the BJP-led states have announced sops in the face of rural distress and agitations, three Congress-led ones made it a point to declare such schemes soon after taking over office last December. Terming it as “poor fiscal marksmanship”, the RBI also went public with its concerns on deviation in revised estimates, stating that the budget estimates presented during the beginning of FY20 had indicated a lower fiscal deficit.

In a statement that comes after a jump in devolution of revenues to states, the RBI stressed the “importance of states has increased” with the shift in composition of government finances, the statement said. It also said the outstanding debt as percentage of GDP has been rising despite moderation in interest payment as percentage of revenue receipts. The visiting Finance Commission team, led by chairman NK Singh, also had a meeting with senior economists and is likely to meet top bankers Thursday, after which it is likely to address a press conference.

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