The Reserve Bank of India (RBI) 12 May 2015 released the report titled State Finances: A Study of Budgets of 2014-15. The theme of this year’s report is Fiscal Consolidation: Assessment and Medium Term Prospects.
The report is an annual publication that provides data, analysis and an assessment of the finances of state governments. It provides the snapshot of the changing dynamics of fiscal federalism over the years.
Main highlights of the report
- It calls for renewed and sustained efforts by states towards fiscal consolidation in the years following the global financial crisis so as to increase states’ own revenues.
- It calls for freeing up resources for higher capital outlays, improving the quality of fiscal consolidation and setting the consolidated debt-GDP ratio of the states, including off budget liabilities on a declining trajectory.
- The rapidly growing e-commerce could contribute to states’ own revenue efforts, provided there is greater clarity in rules and procedures to enable better compliance.
- Windfall gains accruing over time from auctioning of natural resources need to be channelised effectively for meeting developmental needs of the mineral rich states.
- Transition from the present origin-based indirect tax regime to a destination-based tax regime under the Goods and Services Tax from 1 April 2016 is expected to create a buoyant source of revenue for the centre and states in the medium term.
- Improvement in fiscal marksmanship is important for delivering on fiscal consolidation intentions, particularly by minimising the systematic bias towards over-estimation of expenditure relative to receipts.
The report has been prepared in the Fiscal Analysis Division (FAD) of the Department of Economic and Policy Research.
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