Syllabus: GS3/Economy
Context
- According to the Comptroller and Auditor General of India (CAG), India’s states began FY24 with robust revenue inflows but closed the year facing increasing fiscal strain.
Major Findings
- Total revenue receipts of states were at ₹37.93 lakh crore in FY24.
- States’ own tax revenue formed the largest component at about 50%, followed by the share in Union taxes at nearly 30%, grants-in-aid at around 12% and non-tax revenue at just over 8%.
- Over the past decade, the share of own tax revenue and tax devolution has steadily increased, while dependence on grants has declined.
- Disparities Among States: States such as Haryana, Maharashtra, Karnataka, Telangana, Tamil Nadu and Gujarat derived more than 60% of their revenue from their own taxes, while several northeastern and hill states, along with Bihar, remained heavily dependent on central transfers.
- Rigidity in State Budgets: Committed expenditure such as salaries, pensions and interest payments absorbed a large share of revenue expenditure, with significant variation across states.
- GST’s Role: State GST remained the single-largest source of its own tax revenue. It accounted for about 43% of states’ own tax collections.
- Debt on States: Public debt of states reached ₹67.87 lakh crore as of March 2024, equivalent to 23.42% of combined GSDP.
- Debt levels varied sharply, ranging from below 20% of GSDP in some states to over 50% in others, highlighting uneven fiscal resilience.
- Deficit indicators: Revenue surplus was seen in 16 states whereas revenue deficit was visible in 12 states.
- Sharp rise in deficits is seen in Chhattisgarh, Karnataka, Maharashtra, Rajasthan, Telangana and Uttar Pradesh.
- Liquidity Stress: Liquidity stress also emerged as a concern during FY24, with 16 states resorting to ways and means advances (WMA) from the Reserve Bank of India.
- Rajasthan, Andhra Pradesh and Telangana together accounted for about 62% of the total WMA and overdraft availed during the year.
- In contrast, 12 states did not avail of any WMA during FY24, reflecting wide divergence in liquidity positions across states.
Overall Assessment:
- Despite improved tax devolution and own-tax collections, state finances remain fragile.
- High revenue expenditure, rising committed spending, growing debt and fiscal norm breaches constrain states’ investment capacity and resilience to economic shocks.
- The CAG has advised harmonization and rationalization of object heads across the Union and states, to be adopted from FY28, a reform seen as critical to improve the quality of public expenditure data.
- Object heads are a component of the government’s budget and accounting classification system that specify the purpose or nature of expenditure.
| Components of Budget – There are three major components: expenditure, receipts and deficit indicators. – Total Expenditure can be divided into capital and revenue expenditure. a. Capital expenditure is incurred with the purpose of increasing assets of a durable nature or of reducing recurring liabilities. b. Revenue expenditure involves any expenditure that does not add to assets or reduce liabilities. – The receipts of the Government have three components: revenue receipts, non-debt capital receipts and debt-creating capital receipts. a. Revenue receipts involve receipts that are not associated with increase in liabilities and comprise revenue from taxes and non-tax sources. b. Non-debt receipts are part of capital receipts that do not generate additional liabilities, it includes recovery of loans and proceeds from disinvestments. c. Debt-creating capital receipts are ones that involve higher liabilities and future payment commitments of the Government. – Fiscal deficit is the difference between total expenditure and the sum of revenue receipts and non-debt receipts. It a. indicates how much the Government is spending in net terms. b. Positive fiscal deficits indicate the amount of expenditure over and above revenue and non-debt receipts, it needs to be financed by a debt-creating capital receipt. |
Source: LM
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