The central government authorizes an additional ₹72,961.21 crore for state governments to fortify social welfare and infrastructure projects. Learn about the tax devolution, fiscal improvements, and the RBI’s insights into state finances in this comprehensive overview.

Empowering States: ₹72,961.21 Crore Injected for Welfare and Infrastructure

In a strategic move to reinforce state finances for social welfare initiatives and infrastructure development, the central government has sanctioned an extra installment of tax devolution, totaling ₹72,961.21 crore. This allocation supplements the tax devolution slated for January 10, 2024, and a previous installment of ₹72,961.21 crore released on December 11, 2023. The release aligns with the upcoming festive season and the approaching New Year, emphasizing the government’s commitment to state progress.

Monthly Tax Devolution Continues

With the government traditionally providing 14 installments annually, including two extra releases to date, it asserts that going forward, the regular monthly disbursement will resume, culminating in a total of 14 installments each year. The monthly devolution adheres to the Budgeted Estimate.

RBI Report Highlights State Finances

The Reserve Bank of India’s ‘State Finances Report 2023-24’ sheds light on the fiscal landscape of state governments, covering the period from 2021-22 to 2023-24. Noteworthy improvements include a decline in consolidated fiscal deficit, eradication of revenue deficit, and substantial strides in capital expenditure during FY23 and FY24.

Favorable Fiscal Outlook

The states’ consolidated gross fiscal deficit to gross domestic product (GFD-GDP) ratio decreased from 4.1% in 2020-21 to 2.8% in 2021-22, attributed to a moderation in revenue expenditure and enhanced revenue collection. This positive momentum persisted in 2022-23, with the state’s GFD-GDP ratio at 2.8%, below the budget estimate of 3.2% and the Centre’s limit of 4%, as per provisional estimates.

Debt-GDP Ratio Decline

The debt-GDP ratio of states saw a reduction to 27.5% at the end of March 2023 from its peak of 31% in March 2021. While the overall fiscal outlook for states in 2023-24 remains favorable, some individual states exhibit a relatively high debt-GDP ratio.

Tax Revenue and GST Impact

States’ own tax revenue has surged from 5.7% of GDP in 2003-04 to 6.9% in 2022-23, with tax buoyancy witnessing improvement from 2013-14 to 2022-23. The implementation of GST, especially since 2017-18, has played a pivotal role, making State Goods and Services Tax (SGST) the primary revenue source.

RBI’s Call for Fiscal Capacity Enhancement

While acknowledging the overall high tax efforts of states, the RBI suggests continuous investment in augmenting fiscal and tax capacity through reforms and innovative tax administration. The report advocates scaling up fiscal capacity for seamless service delivery and the enhancement of physical and human capital.

Conclusion: Nurturing Financial Resilience

With the injection of ₹2,961.21 crore and a commitment to regular tax devolution, the government aims to fortify states’ financial resilience. The RBI’s insights underscore the positive fiscal trajectory, urging states to invest in sustained fiscal capacity for holistic socio-economic progress.

The State-wise break up of amounts released is given below:

Sl.No.StateAmount (₹ in crore)
1Andhra Pradesh2952.74
2Arunachal Pradesh1281.93
9Himachal Pradesh605.57
13Madhya Pradesh5727.44
23Tamil Nadu2976.10
26Uttar Pradesh13088.51
28West Bengal5488.88
TOTAL 72961.21

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