The Fiscal Health of Indian States: A Tale of Surpluses, Debts, and the Welfare Paradox
UPSC Relevance
Prelims: Indian Economy (Public Finance - Fiscal Deficit, Revenue Surplus, Debt-to-GDP ratio; Fiscal Federalism - Central Transfers, Finance Commission); Constitutional Bodies (Comptroller and Auditor General of India - CAG); Reserve Bank of India (RBI).
Mains:
General Studies Paper 2 (Polity & Governance): Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein.
General Studies Paper 3 (Economy): Government Budgeting; Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment; Inclusive growth.
Key Highlights from the News
The Comptroller and Auditor General (CAG) report on the financial health of states presents a complex picture beyond simple figures.
States like Uttar Pradesh record a revenue surplus, but they have a low capacity for generating their own revenue. They primarily depend on Union transfers.
There are significant disparities in the financial status of states. This is referred to as vertical imbalance.
The debt burden of many states is increasing to alarming levels. Punjab, Himachal Pradesh, Rajasthan, Kerala, Bihar, and West Bengal are states with high debt burdens.
The article highlights India's "welfare paradox": while implementing some of the world's largest welfare schemes, governments lack the necessary financial foundation for them.
These welfare schemes are often implemented through borrowing and opaque methods like off-budget loans.
COMMENTS