RBI gives report on state Government Budgets

Published on January 22, 2023
Current Context: On January 16, 2023, the Reserve Bank of India (RBI), in accordance with the theme "Capital Formation in India: The Role of States," published a paper titled "State Finances: A Study of Budgets for 2022- 2023."
RBI gives report on state Government Budgets
  • The report compares state government finances for 2022-2023 with those of the previous two years.
  • Debt-to-GDP
    • According to the report, the state's debt-to-gross domestic product (D/GDP) ratio is still astronomically high.
    • In 2022–2023, the debt-to-GDP ratio dropped from 31.1% to 29.5%. States may be required to make larger payments to meet their obligations if they have a high debt-deficit burden.
    • The Fiscal Responsibility and Budget Management (FRBM) review group, headed by N K Singh, recommended a 20% debt-to-GDP ratio for states.
  • Contingent Liabilities
    • According to the report, state governments' contingent liabilities have also dramatically expanded.
    • Contingent liabilities are a state government's commitments to pay back principal and interest if a state-owned business defaults on a loan.
    • From Rs. 3.12 lakh crore (2% of GDP) in 2017 to Rs. 7.4 lakh crore (3.7% of GDP), state government guarantees increased.
    • At the end of March 2021, the states of Andhra Pradesh, Telangana, and Uttar Pradesh will have the most outstanding guarantees.
  • Old Pension Scheme (OPS)
    • The report also raises new issues, such as certain states' preference to go back to the Old Pension Scheme (OPS).
      • As it became clear that funding the OPS would be difficult, a new pension scheme was implemented in the early 2000s to decrease the financial load on the state.
    • States like Rajasthan and Chhattisgarh have now decided to withdraw, putting state budgets in danger, even though the majority of states at the time approved of the new pension plan.

Question:

Q.1 Who released a report titled “State Finances: A Study of Budgets for 2022- 2023”?
a. Ministry of finance
b. SBI
c. World economic forum
d. RBI

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