The Reserve Bank of India brings out a report as an annual publication entitled State Finances: A Study of Budgets, which analyses the fiscal position of state governments on the basis of primary disaggregated state-wise data. From 2005-06 onwards, the report has been structured around a special theme of topical relevance. This report’s theme is ‘Fiscal Consolidation: Assessment and Medium Term Prospects.’

The salient features that emerge from an analysis of the state finances are:

• In the years following the global financial crisis, amendments to states’ fiscal responsibility enactments have motivated renewed efforts towards fiscal consolidation.

• Key to successful sub-national fiscal consolidation is a sustained increase in states’ own revenues, with grants from the centre playing a supplemental role.

• Improvement in fiscal marksmanship is also important for delivering on fiscal consolidation intentions, particularly by minimising the systematic bias towards over-estimation of expenditure relative to receipts.

• Higher untied transfers under the Fourteenth Finance Commission award would afford greater fiscal autonomy for the states; it is incumbent upon them to efficiently use these resources.

• 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; furthermore, windfall gains accruing over time from auctioning of natural resources needs to be channelised effectively for meeting developmental needs of the mineral rich states.

This report has been prepared by the Fiscal Analysis Division (FAD) of the Department of Economic and Policy Research (DEPR). Support was received from the regional offices of DEPR, other departments of the Reserve Bank (Department of Government and Bank Accounts and Internal Debt Management Department), finance departments of state governments and union territories, the Ministry of Finance, Government of India, the Planning Commission and the Office of the Comptroller and Auditor General (CAG) of India.

This report is also available on the RBI website (www.rbi.org.in). Feedback/comments are solicited to help improve the analytical or informational content of the report. These may be sent to the Director, Fiscal Analysis Division, Department of Economic and Policy Research, 6th Floor, Amar Building, Reserve Bank of India, Shahid Bhagat Singh Road, Mumbai 400 001 or through email.

M. D. Patra
Executive Director
May 12, 2015