RBI warns Finance Commission of more fiscal slippages by states

The Reserve Bank of India (RBI) on Wednesday warned of the rising risks to fiscal consolidation of the states as their finances are saddled with farm loan waivers, income support schemes and the Uday bonds for their power distribution companies. The remarks were made during a meeting between the members of the 15th Finance Commission and the RBI brass, including governor Shaktikanta Das and the deputy governors, at the central bank headquarters.

In a statement that comes after a jump in devolution of revenues to states, the RBI stressed the "importance of states has increased" with the shift in composition of government finances, the statement said. It also said the outstanding debt as percentage of GDP has been rising despite moderation in interest payment as percentage of revenue receipts.

 

Other key issues raised by Das, who was a member of the commission before being appointed as the governor last December, included necessity of setting up state finance commissions, public sector borrowings and "continuity of finance commission", the statement said.

In a special presentation on issues and challenges faced by states for market borrowings, the RBI discussed ways of increasing orientation of state government borrowing to markets, improving secondary market liquidity, risk asymmetry and increasing the corpus of Consolidated Sinking Fund and Guarantee Redemption Fund. The presentation also spoke on cash management wherein the states need to improve their cash forecasting capabilities, the statement said.

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