“The Reserve Bank of India (RBI) today released ‘State Finances: A Study of Budgets of 2006-07’ – a publication that provides data, analysis and assessment of finances of State Governments. The publication provides data at both, consolidated and disaggregated levels based on the State budgets for 2006-07. Statistical tables appended to the publication provide information on several fiscal parameters as well as State-wise budgetary data covering both revenue and capital accounts.
The data analysed in the publication highlight that there has been a marked improvement in the fiscal position of the State Governments in recent years in terms of key deficit indicators. In 2005-06, gross fiscal deficit (GFD) and revenue deficit (RD), as ratios to gross domestic product (GDP), have declined to 3.2 per cent and 0.5 per cent, respectively. Such a correction has been primarily through revenue enhancement with revenue receipts, as ratio to GDP, rising by 1.0 per cent over the previous year and States’ own tax receipts rising by 0.3 per cent. Further, the revised estimates (RE) of 2005-06 point out that the fiscal performance of the State Governments has improved compared to the budget estimates, particularly in the revenue account, reversing the usual trend of decline in fiscal performance in the revised estimates.”
Indian case is interesting in that following a recommendation by a government commission, it encouraged state governments to enact Fiscal Responsibility Laws in order to get debt relief from central government;
“Twelfth Finance Commission (TFC) recommended that each State should enact FRL. This has been stipulated as a pre-condition for availing the debt relief recommended by the TFC. According to TFC, this legislation should, at a minimum, provide for:
(a) eliminating revenue deficit by 2008-09;
(b) reducing fiscal deficit to 3 per cent of GSDP or its equivalent defined as ratio of interest payment to revenue receipts;
(c) bringing out annual reduction targets of revenue and fiscal deficits;
(d) bringing out annual statement giving prospects for the State economy and related fiscal strategy;
(e) bringing out special statements along with the budget giving in detail number of employees in government, public sector, and aided institutions and related salaries.”
Related;
State of solvency
Will India measure up?
Indian Productivity Miracle
Conference on 'Fiscal Responsibility and Intergovernmental Finance'- jointly with WBI and ASCI
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