Soaring state subsidy bill could limit development spending: RBI

MUMBAI: The Reserve Bank of India has expressed concern about growing subsidies in several states, despite the benefits from fiscal consolidation. After contracting in 2019-20, state spending on grants increased by 12.9% and 11.2% in fiscal years 2019 and 2022, respectively.
“Increasing spending on undeserved subsidies could increase the share of committed spending in states’ spending, limiting the fiscal space available for capital and development spending,” the report said. . RBI said in its financial stability report. It also shows that subsidies account for a larger share of revenue spending – from 7.8% in FY20 to 8.2% last year.
The RBI’s statement comes at a time when economists have expressed concern about the ability of state governments to meet their target. budget estimated Rs 6.9 lakh capital expenditure, accounting for about 2.6% gross domestic product.
Power forms the bulk of subsidies
Recently, Prime Minister Narendra Modi also criticized states and political parties for offering “revdis” or free gifts, and described his opponents as “the enemy of the taxpayer”.
The RBI’s financial stability report doesn’t detail the type of subsidies that states have paid for, but electricity remains one of the most important components with free water provision not being fully covered by the budget. The Center is concerned about states not providing enough electricity subsidies in their budgets, resulting in large debt for power generating companies.
Follow ICRA, 18 states have budgeted their capital expenditures at Rs 6.2 lakh for fiscal year 2023, 37.8% higher than Rs 4,5 lakh in fiscal year 2022. However, in H1FY23, spending has increased to Rs 1.59 lakh from Rs 1.56 lakh last year. An increase in state government financial assistance has resulted in the subsidy’s share of revenue spending increasing from 7.8% in 2020 to 8.2% in 2022.


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