Sops announced by states may divert resources from infra development: RBI article
The Sops announced by several states in their Budget 2024-25 may divert resources from important socio-economic infrastructure development, said an RBI note on Tuesday.
The total fiscal deficit as a percentage of the budget estimate has been revised in April-September 2024-25 over H1:2023-24 in the case of both the Center and the states, mainly due to strong receipts, a slowdown in the growth of interest costs and a decrease in capital expenditure. , an article published in the December RBI Bulletin said.
This provides financial room for them to increase capex in the latter half of 2024-25 which will help sustain post-pandemic gains in cost quality and support medium-term growth prospects.
However, several states have announced sops in their 2024-25 budget; such use may divert resources from important social and economic development, he said.
Many states, including Haryana, Punjab, Maharashtra, and Jharkhand have announced schemes that include free electricity for agriculture and housing, free transport, grants for unemployed youth and financial assistance to women.
The views expressed in the article are those of the authors and do not represent the views of the Reserve Bank of India, a disclaimer said.
According to this article, the Center has recorded high tax collection, both direct and indirect, and it is expected to continue.
The Centre’s non-tax profit has been boosted by the transfer of capital from the State Bank’s surplus, it said.
Government spending, both at the Center and states, has been reduced in H1:2024-25 reflecting the impact of the model code of conduct on national elections and is expected to continue at a faster pace in H2:2024-25.
Overall, we said, the Center achieved more than half of its allocated revenue in H1:2024-25 while containing its expenditure to less than half of what it had planned for the entire financial year.
This proves that the Center has met its fiscal deficit target of 4.9 percent of GDP for the year 2024-25.
Social sector expenditure in Indian states has increased significantly from 5.4 percent of GDP in 2005-06 to 8.1 percent in 2024-25 (BE), with increasing priority on education, health, and other essential social services.
However, the effectiveness of this spending depends on how it translates into tangible results.
