States that Have the Lee­way to Ex­pand Fis­cal Deficit

The Economic Times - - Money & Banking -

The 14th Fi­nance Com­mis­sion ap­proved by the union Cabi­net ear­lier this month has given states that ful­fil cer­tain con­di­tions the flex­i­bil­ity to ex­pand their deficit by an ad­di­tional 50 ba­sis points above the 3% gross thresh­old limit. The idea is to al­low the fis­cally pru­dent states more head­room to ex­pand de­vel­op­ment linked spend­ing. Care Rat­ings an­a­lysed the states that will be in a po­si­tion to make use of this flex­i­bil­ity. REV­ENUE SUR­PLUS (+) / DEFICIT (-)

States will have more head­room for spend­ing only if they do not have a rev­enue deficit for the year in which the bor­row­ing lim­its are to be fixed and the im­me­di­ately pre­ced­ing year. Only five states — Gu­jarat, Kar­nataka, Mad­hya Pradesh, Odisha and Te­lan­gana — meet this cri­te­ria IN­TER­EST PAY­MENT TO REV­ENUE RE­CEIPT (IP/RR) RA­TIO States can ex­pand their deficit up to 25 ba­sis points above the 3% thresh­old only if the ra­tio of in­ter­est pay­ments to rev­enue re­ceipts is less than or equal to 10% in the pre­ced­ing year. Among the five states that ful­fil the first con­di­tion, Gu­jarat fails to qual­ify in this cri­te­ria DEBT TO GSDP RA­TIO Kar­nataka, Mad­hya Pradesh, Odisha and Te­lan­gana also ful­fil the third con­di­tion, which says that states’ debt to gross state do­mes­tic prod­uct (GSDP) ra­tio has to be less than or equal to 25% in the pre­vi­ous year. This will al­low them to ex­pand their deficit by a to­tal of 50 ba­sis points above 3%

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.