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Markets need to evolve more mechanisms to reward the States that are managing their fiscal responsibilities prudently, N K Singh, Chairman, 15th Finance Commission, and President, Institute of Economic Growth, said.
Today, the markets don’t really differentiate on the cost of borrowing between a profligate State and a prudent State. There is a need to conceive measures for the market to reward those States that manage their finances more prudently, Singh said at the Global Economic Policy Forum 2023, jointly organised by DEA and CII, here on Friday.
Singh also underscored the need to reward States which increase their capital expenditure on renewable fuels.
“There is too much latitude for States to indulge, and almost no penalties for breaching the fiscal targets that the States have laid down for themselves.
Fiscal responsibilities
These are fiscal responsibilities that each of the State have fixed for themselves. The question of adherence to its own targets, and own fiscal responsibilities is an important one,” Singh said.
There is a bail-out provision by the Consolidated Fund of India as far as the States are concerned, he said. Are States so comforted by this that they borrow heavily and do not worry about the cost of borrowing and those who lend are always assured that there will never be a sub-national bankruptcy at the State level, he asked.
“India’s great advantage is that the bulk of investment in India’s infrastructure has yet to take place, and so India can make choices to select environmentally friendly technologies. If India has this option, States, particularly those which have lagged behind national averages, have even more of these choices to exercise”, he added.
More skills, more capital, and using them more efficiently is the need of the hour, said Ajay Seth, Secretary, Department of Economic Affairs, Ministry of Finance.
“We need to skill and reskill, both white-collar and blue-collar workers, and this is largely in the domain of the States.
The cost of capital in the foreseeable future is going to be higher for our country compared to more advanced economies, the work on the cost of intermediation is more in the Union’s domain, but to use that capital more efficiently is largely in the States’ domain” Seth said.
Noting that aspirational district programme has worked very well, perhaps there is need for aspirational States programme, he added.
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