In data released by the Reserve Bank of India (RBI) last week, it became clear that India’s states are, on the whole, performing noticeably better than the Centre in controlling expenditure. As Table 1 shows, the gross fiscal deficit of all states in the estimates for 2011-12 has declined over the previous year, the first such decline for five years. This comes thanks to a sharp drop in the consolidated revenue deficit of the states, also visible in Table 1.
The state governments’ fiscal correction is particularly marked when it comes to their outstanding liabilities. As Table 2 shows, outstanding liabilities of state governments hit a high of nearly a third of gross domestic product in 2004. Since then, they have been brought down to a more reasonable 22.5 per cent – exactly what they were in 1991. The experience of individual states in doing so varies, as Table 3 points out. Some states have performed particularly well: Bihar, for one. Jharkhand, although starting with less than half Bihar’s outstanding liabilities, now has nearly the same, as a proportion of state GDP. West Bengal is indeed a peculiar case; it has tried manfully to reduce its liabilities, but, as Table 4 shows, it still has the highest in the country. Meanwhile, “populist” Tamil Nadu is among the best performers in terms of keeping liabilities low.(Click here for Tables)
How are states pulling off this correction? As Table 5 shows, through cutting development and social-sector spending. Table 6, which tracks the proportion spent be states on the social sector shows that it has increased (perforce) under the UPA – but has held remarkably steady for a few years. Meanwhile, as Table 7 makes clear, some states are struggling under the burden of their expenditure commitments: Bengal’s debt burden means interest payments eat up half its revenue, for example.
