States Spend­ing on Ed­u­ca­tion, Health Saw Higher Growth: RBI

The Economic Times - - Commodities Plus - Gay­athri.Nayak@ times­group.com

Mum­bai: State govern­ments that spent money on sec­tors such as ed­u­ca­tion and health ben­e­fited from higher eco­nomic growth, RBI has found.

How­ever, many of their busi­nesses are loss mak­ing, adding to their fi­nan­cial woes, and RBI sug­gests that govern­ments sell off state en­ter­prises by of­fer­ing stock op­tions to em­ploy­ees, among oth­ers, to bring their fi­nances back on track, ac­cord­ing to the re­port ‘State Fi­nances: A Study of Bud­gets of 2015-16’. States that spent a higher share of their in­come on so­cial sec­tors have ben­e­fit­ted over a longer pe­riod, while gains out of pay re­vi­sions have been short term in na­ture.

“Larger in­vest­ment in ed­u­ca­tion and health is a pre­req­ui­site for har­ness­ing the ben­e­fits of an in­creas­ing young work force for gain­ful and pro­duc­tive al­lo­ca­tion of hu­man cap­i­tal,” the re­port said.

RBI un­der­scored the need for lower-in­come states to in­crease so­cial sec­tor spend­ing. “Ex­pendi- ture on the so­cial sec­tor is as­so­ci­ated with large pos­i­tive ex­ter­nal­i­ties,” it said. “States in low­er­in­come brack­ets need to im­prove so­cial sec­tor spend­ing …These ad­just­ments would en­hance labour pro­duc­tiv­ity and en­able states to reap the ben­e­fits of the ‘de­mo­graphic div­i­dend’.”

The re­port lauds the fis­cal con­sol­i­da­tion ef­forts of states — the gross fis­cal deficit of states dipped from 4% of their GDP in 200001 to an es­ti­mated 2.4% in 2015-16. How­ever, it voiced con­cern that be­sides salary ex­pen­di­ture, grow­ing pen­sion li­a­bil­i­ties could be another ma­jor source of fis­cal strain for states in the fu­ture, while un­der­scor­ing the need to fo­cus on the qual­ity of fis­cal ex­pen­di­ture. From a medium-term per­spec­tive, en­dur­ing im­prove­ments in the qual­ity of states’ fi­nances would hinge on the re­vival of state-level pub­lic en­ter­prises and im­prov­ing the vi­a­bil­ity of power dis­tri­bu­tion firms.

RBI sug­gests that govts should sell off state en­ter­prises to bring fi­nances back on track

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