Should states cough up higher interest rates for their fiscal profligacy?

Debate over how states manage their finances likely to pick up as the constitution of the 16th Finance Commission is round the corner

The Reserve Bank of India (RBI), in its latest Financial Stability Report released in June, has sounded a note of caution on the high debt levels among states.

After reaching a 15-year high of 31 per cent of gross domestic product at the end March 2021, states’ outstanding liabilities came down to 27.9 per cent of GDP by end March 2023. “At 27.9 per cent of GDP at end-March 2023, the debt level of the states is still higher than the 20 per cent limit recommended by the Fiscal Responsibility and Budget Management (FRBM) Review Committee (2018) and warrants further