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August 09, 2017

The death of austerity: With farm loan waivers, states are building up staggering debt

By Govind Bhattacharjee

In this Schroll article, Govind Bhattacharjee talks about the precarious position of state finances for UP, Punjab etc due to farm loan waivers. Excerpts:


"Evidently, states have taken to indulging in the kind of populism that was earlier a prerogative of the Centre under the UPA regime. This is partly because the states have been boosted by the 10% hike in the share of Union taxes and duties that goes to them, based on recommendations of the Fourteenth Finance Commission, which had increased the tax devolution from 32% to 42%."


"...The state-level Gross Financial Deficit-GDP ratio in 2015-’16 had breached the Fiscal Responsibility and Budget Management Act ceiling of 3% for the first time since 2004-’05, and is likely to worsen in 2016-’17. Even though the Centre has reversed the trend of profligacy so visible during the previous regime, as per the RBI Report, the combined fiscal deficit of the Centre and the states could soar to 7% or even higher due to the swelling state deficits." 

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