15th Finance Commission raises concerns on debt levels of states

The Fifteenth Finance Commission has raised concerns over debt levels of states and said there needs to be a road map to bring down state debts to a sustainable level.

“The overall state debt has tended to rise particularly after Ujwal DISCOM Assurance Yojana (UDAY). Going forward, we need to carefully watch debt sustainability and work towards a road map where the overall debt and gross domestic product (GDP) of the government is in conformity with the Fiscal Responsibility and Budget Management (FRBM) Act adopted,” the Commission said through its official Twitter account, after a meeting of Commission members with Reserve Bank of India Executive Director Michael Patra and other RBI officials.

The UDAY scheme refers to the financial turnaround and revival package for electricity discoms, under which over 75 per cent of their debts were taken over by the respective state governments in 2015. This has freed the books of the discoms but loaded state governments with even more debt. In its tweets, the Commission stated that it had an “exceedingly productive interaction” with Patra and his colleagues on the finances of state governments. “Most states are in conformity with the fiscal deficit trajectory of 3 per cent GDP, as contained in the obligations of the FRBM Act adopted by them,” it said, adding this was not true of debt.

It says that most are in conformity with fiscal deficit trajectory of 3% GDP, as contained in the obligations of the FRBM Act adopted by them