The vital third tier

Local governments must be strengthened

The Reserve Bank of India (RBI) has released its annual study of state finances, which is a vital resource for observers of the Indian political economy, given the difficulties faced otherwise in aggregating and analysing state government budgets. The headline point, with important implications for the general government budget, is that the states’ gross fiscal deficit breached the 3 per cent of gross domestic product (GDP) mark required by fiscal responsibility legislation. The report pointed out that the combined revenue deficit of the state governments in particular rose from 0.1 per cent of GDP in 2018-19 to 2 per cent