An article by the Reserve Bank of India (RBI) has named Kerala along with four other states—Bihar, Punjab Rajasthan, and West Bengal, whose indebtedness requires corrective measures. The article prepared by a team of economists under the guidance of RBI Deputy Governor Michael Debabrata Patra, states that state finances are vulnerable to a variety of unexpected shocks that might alter their fiscal outcomes, causing slippages relative to their budgets and expectations.
“The recent economic crisis in neighboring Sri Lanka is a reminder of the critical importance of public debt sustainability. The fiscal conditions among states in India are showing warning signs of building stress," the article points out.
It warns that debt stock for Kerala, Punjab, Rajasthan, West Bengal, and Bihar is no longer sustainable, as the debt growth has outpaced their Gross State Domestic Product (GSDP) growth in the last five years.
According to the article, Kerala, Rajasthan, and West Bengal are projected to exceed the debt-GSDP ratio of 35 per cent by 2026-27. "Stress tests show that the fiscal conditions of the most indebted state governments are expected to deteriorate further, with their debt-GSDP ratio likely to remain above 35 per cent in 2026-27," the article says.
“These states will need to undertake significant corrective steps to stabilize their debt levels,” it adds.
The article lists out the top 10 states accounting for half of the total expenditure by all state governments. As per the article, Kerala has already exceeded the debt target set by the 15th Finance Commission for 2020-2021.
(With Inputs From PTI)