RBI flags states slipping on fiscal deficit

Mumbai: Higher expenditure on salaries and farm loan waivers, coupled with a revenue shortfall on GST implementation, led to a slippage of 0.35 per cent in states’ fiscal targets to 3.1 per cent in FY18, the Reserve Bank said on Thursday.

This is the third consecutive year where the states have failed to meet their gross fiscal deficit (GFD) target, the central bank said, adding this comes despite expectations of an improvement on higher devolution from the Centre.

For FY19, states are hoping for a 0.2 per cent revenue surplus as against a revenue deficit of 0.4 per cent as per the revised estimates, which will lead to an overall GFD of 2.6 per cent, against 3.1 per cent in FY18, it said.

At a country-wide level, farm loan waivers alone contributed to a third of the overall slippage worries, with a 0.05 per cent slippage of the overall 0.13 per cent on revenue expenditure, the RBI said in its study on state finances based on state budgets.

The apex bank reiterated its concerns on the “moral hazard” farm loan waivers, saying their track record for improving productivity is “unproven”.