New study shows turnaround in states' finances: RBI

The financial position of states, based on the budget estimates, indicate a turnaround from the expansionary fiscal stance in 2008-09 and 2009-10 to a fiscal consolidation path in 2010-11, according to a new study released by the Reserve Bank of India (RBI).

An improvement in state finances is evident with a majority of the states budgeting either a revenue surplus or a lower revenue deficit in 2010-11 (budget estimates) as compared with 2009-10 (revised estimates), according to the study.

The study places consolidated revenue deficit of states at 0.3 per cent of GDP during 2010-11 (BE) against 0.7 per cent in 2009-10 (RE). With an improvement in the consolidated revenue account of states, the gross fiscal deficit as a ratio of GDP (GFD-GDP) is estimated to decline to 2.5 per cent in 2010-11 (BE) from 3.3 per cent in 2009-10 (RE), the study said.

Based on broad-based budget data, the study noted an improvement in state finances in 2010-11 as reflected by lower GFD-GSDP ratios in the case of 22 states.

Of the 17 non-special category states, 11 states have budgeted lower GFD-GSDP ratios in 2010-11. All special category states have budgeted lower GFD-GSDP ratios during the same period, the study noted.

The broad-based recovery is also reflected in higher tax buoyancy (including own tax and tax devolution from the centre) that many states expect. Non-tax revenues (own non-tax revenues and grants from the centre) are, however, budgeted to decline in 18 states.
The revenue expenditure as ratio to GSDP is budgeted to decline in 19 states, which is likely to be a major source for correction in their revenue accounts.