States should tone up tax admin, rationalise charges: RBI

Expressing worry over slippage in fiscal health of states, the Reserve Bank of India (RBI) today said state governments needed to improve tax administration and rationalise user charges to quickly arrest deterioration in finances.

The gross fiscal deficit (GFD) is budgeted to increase to 3.2 per cent of the gross domestic product (GDP) in 2009-10 (Budget Estimates), compared with 2.6 per cent of GDP in 2008-09 (Revised Estimates). Revenue account turned from a surplus of 0.2 per cent in 2008-09 (RE) to a deficit of 0.5 per cent of GDP in 2009-10 (BE).

This setback had been due to a combination of factors such as the recent economic slowdown with its corresponding decline in revenue and in turn an increase in expenditure on account of stimulus measures undertaken by many states, RBI said.

Incentives provided by the Twelfth Finance Commission and budgetary rules have played a positive role in creating fiscal space for the states to embark on stimulus packages.

As a part of counter-cyclical measures to minimise the impact of the global financial crisis and economic slowdown, the Union government gave more fiscal space (to borrow more) to the state government.