BS EDIT: State finances: progress made, challenges ahead

States show fiscal progress

State governments reduced their fiscal deficit to 2.9 per cent of GDP in FY24, below the 3 per cent limit, reflecting improved fiscal responsibility

Debt levels still concern

State debt stands at 28.5 per cent of GDP (March 2024), above the 20 per cent target, with Himachal Pradesh's liabilities exceeding 45 per cent of GSDP

Quality of spending improves

Capital outlay rose to 2.6 per cent of GDP in FY24 from 2.2 per cent in FY23, signalling a focus on productive spending for long-term growth

Revenue buoyancy drives outcomes

States' revenue buoyancy rose to 1.44 post-pandemic from 0.86 pre-pandemic, with GST reducing disparities in tax revenue-to-GSDP ratios

Structural reforms needed

Excessive guarantees (3.8% of GDP) and subsidy politics need focus. Rationalising schemes and timely resource transfers can boost fiscal efficiency

Constant vigilance is key

While states have made progress, sustained reforms and vigilance are essential to ensure fiscal sustainability and improve economic outcomes in the long run