CEA hopeful of states containing fiscal deficit at 3% of GSDP

Chief Economic Adviser (CEA) Arvind Subramanian on Friday expressed hope that states will show prudence and contain their fiscal deficit at 3% of the Gross State Domestic Product (GSDP).

According to the Fiscal Responsibility and Budget Management (FRBM) Act, states are mandated to contain their fiscal deficit at 3% of GSDP. Yet as many as 5 out of 16 states such as Rajasthan, Telangana, Bihar, MP and  UP have breached this limit, even after discounting for Uday loans.

"Until recently, the Centre was much more profligate than the states. Average fiscal deficit of states was half of that of the Centre. All of them (states) had implemented their own fiscal responsibility legislation. The Centre was playing more fast and loose with its FRBM. States were responsible if you analyse their budget. It seems that trend is going to continue," Subramanian said at an event here.

The CEA further said it is not going to be the case that 3% ceiling of fiscal deficit on states budget is going to be breached systemically.

"Some states will breach 3% fiscal deficit target for various reasons but on an average you are going to have prudence," Subramanian said.

Subramanian said massive recentralisation that took place under the Centrally Sponsored Schemes (CSS) was an aberration to a more broader and deeper trend of decentralisation.

"UPA government's CSS initiative pulled that (decentralisation) back. The 14th Finance Commission came and pushed back on that by reversing what has been happening in the previous 10 years. It did represent a massive watershed," he noted.