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The Reserve Bank of India (RBI) and the 15th Finance Commission, headed by N K Singh, on Wednesday discussed the necessity of setting up State Finance Commissions (SFC) for respective state governments and public sector borrowing requirements.
Key issues raised by Reserve Bank Governor Shaktikanta Das and Singh were discussed in detail at a meeting between the finance panel members and the RBI officials.
The meeting also discussed the continuity of the Finance Commission.
“It was felt that this was required more in view of the fiscal management requirements of the States, especially given the absence of mid-term reviews of awards granted by the Finance Commission, as it used to happen earlier with the awards granted by the Planning Commission,” an official statement said.
The RBI and the Finance Commission also discussed about expenditure codes, especially given that expenditure norms vary from state to state, and the role of states in growth and inflation and the role of states in ease of doing business.
The finance panel members will also meet bankers and economists during their two-day Mumbai visit.
The RBI made a detailed presentation to the Finance Commission on state government finances for 2019-20. The central bank said that the importance of states in the economy has increased with the shift in composition of government finances.
“Fiscal deficit of states is budgeted to be lower in 2019-20 BE (budget estimate), but the revised estimate (RE) and actuals deviate significantly (reflecting poor fiscal marksmanship),” the RBI said.
The RBI said specific factors drive fiscal slippages: these factors include UDAY in the past and farm loan waivers and income support schemes in 2018-19 RE. The outstanding debt as percentage of gross domestic product (GDP) has been rising, despite moderation in interest payment as percentage of revenue receipts, the RBI statement added.
The banking regulator also made another presentation on the issues and challenges of the market borrowings of state governments. The main issues raised in this presentation included the increasing orientation of state governments’ borrowing to markets, improving secondary market liquidity and cash management.
