State finances improve, but reforms needed to address lingering issues

The Reserve Bank of India’s (RBI’s) latest study of state-government finances, released last week, showed significant progress at aggregate level. However, there is still ample scope for improvement and overall economic management depends, to a large extent, on how state-government finances are managed. At a broader level, since Union-government finances are typically the focus of public debate, reports like these help bridge an important gap. The latest RBI study showed that the adoption of fiscal-responsibility rules had helped states. The consolidated gross fiscal deficit for states declined from an average of 4.3 per cent of gross domestic product (GDP) between