Major fiscal indicators of state governments are budgeted to improve in FY'13

MUMBAI: Major fiscal indicators of state governments are budgeted to improve in FY'13. This indicates the states' intent to carry forward fiscal consolidation as envisaged by the Thirteenth Finance Commission, said a study on state government budgets conducted by the Reserve Bank of India.

Despite the increase in market borrowings, the consolidated debt-GDP ratio of the states continued to decline in FY'12, reflecting the impact of a faster increase in nominal GDP relative to overall debt.

During 2012-13, the consolidated debt-GDP ratio of the states is expected to decline further and remain below the 13 thfinance commission's recommended benchmark, indicating the continuation of the fiscal consolidation process at the state level, the report said.

For FY'13, state governments are expected to strengthen their fiscal position, which would be primarily contributed by increasing surplus in the revenue account. 23 of the 28 states have budgeted for revenue surplus during FY'13.

The capital outlay is budgeted to be higher during 2012-13 in the majority of the revenue surplus states, indicating that the quality of expenditure is not being compromised in achieving the deficit targets, the report said.

While the consolidated debt-GDP ratio of the states has significantly declined in recent years, growing contingent liabilities arising from guarantees to state public sector utilities pose a risk to state finances, unless monitored and adequately controlled.

Moreover, the aggregate picture masks interstate disparities and vulnerabilities, which require customised reforms and corrective packages rather than a uniform across-the-board prescription.