GST, farm debt waivers likely to hit fiscal consolidation

A day after the government released buoyant tax figures because of the goods and services tax (GST), the Reserve Bank of India cast doubts over short-term revenue mobilisation.

Besides, farm debt waivers in some states could mar fiscal consolidation efforts there, it said. This, the report said, could impact fiscal consolidation at both the Centre and state levels, as this fundamental reform gains pan-India traction.

According to figures released by Finance Minister Arun Jaitley on Tuesday, the Centre and state governments have earned ~92,283 crore from the GST in July, against a target of ~91,000 crore. This even as 36 per cent of assessees did not file returns.

On Wednesday, the RBI warned: "Additionally, state government finances are likely to face several challenges during 201718. First, the announcement of farm loan waivers by four state governments and the potential announcement by several others pose a major fiscal risk over the medium term." Besides impacting credit discipline, vitiating credit culture and dis-incentivising borrowers from repayment, a loan waiver might have a destabilising impact on the yields of state development loans, posing a higher interest burden for the states, the central bank cautioned.

A fallout could be that the general level of interest rates might firm up and private borrowers might be crowded out. The committed liabilities of states might increase in case they decide to implement the recommendations of their own pay commissions in 201718, it cautioned.

The committed liabilities of states might increase in case they decide to implement the recommendations of their pay commissions, the RBI said