GS Paper III

News Excerpt:

The RBI’s report titled, ‘State Finances: A Study of Budgets of 2023-24’, reveals sustained fiscal improvement, GST impact, and reduced deficit for 2022-23.

Summary of the report:

Sustained fiscal improvement

•  States have sustained improvement in their finances which was achieved in the financial year 2021-22 even during 2022-23 with a combined gross fiscal deficit (GFD) at 2.8% of the gross domestic product (GDP).
• Reduction in deficit achieved through lower revenue deficit and robust capital outlays.

Debt and Borrowings:

• The debt-GDP ratio of states declined from 31% at end-March 2021, to 27.5% by end-March 2023, supported by fiscal consolidation. 
• States’ dependence on net market borrowings, which had risen significantly in the past, declined to 76 % in the budgeted GFD for 2023-24. 

 Expenditure growth slows

• In terms of expenditure dynamics, revenue expenditure growth slowed to 8.9 %, creating room for higher capital outlay.
• Committed expenditure, which includes interest payments, administrative services, and pension, is expected to remain at 4.5% of GDP.

    Increase in states' revenue receipts

• During the financial year 2021-22, there was a substantial increase in states' revenue receipts attributed to the easing of lockdown measures and the subsequent rebound in economic activity.
• This surge in revenue collections was primarily driven by an increase in tax revenue.

     Impact of GST:

•  Implementation of GST contributes to increased tax buoyancy for states.
• State goods and services tax (SGST) saw robust growth, benefitting from improved GST compliance and economic activity.

     Efforts related to modernization:

• Both the Centre and states are actively modernising banking arrangements, cash management practices, and funds transfer mechanisms through the adoption of a single nodal agency (SNA) system.
•  It is aimed at strengthening the public funds disbursal system in India.