States should adopt prudent borrowing strategy and efficient cash management practices: Das

Reserve Bank of India Governor Shaktikanta Das on Thursday emphasised the need for States to adopt prudent borrowing strategy and efficient cash management practices, keeping in view the evolving macroeconomic scenarios.

At the 32nd Conference of State Finance Secretaries, Das stressed the need for the States to focus on improving quality of expenditures, better handling and monitoring of contingent liabilities and improving the governance in the cooperative banks.

The other issues discussed in the meeting included quality of expenditure by the States, role of States in inflation control, debt management strategies, the need for capacity building programmes for debt and cash management, and various operational matters.

The meeting reviewed, inter alia, market borrowings by the States and administration of the Consolidated Sinking Fund / Guarantee Redemption Fund.

Power sector reforms

In its latest report on State Finances, RBI opined that in the medium-term, improvements in the fiscal position of State governments will be contingent upon reforms in the power sector as recommended by 15th Finance Commission (FC-XV) and specified by the Centre — creating transparent and hassle-free provision of power subsidy to farmers; preventing leakages; and improving the health of the power distribution companies (Discoms) by alleviating their liquidity stress in a sustainable manner.

Timely payments of State dues to discoms and, in turn, by them to Generation Companies (gencos) hold the key to the sector’s financial health, the report said.

Undertaking power sector reforms will not only facilitate additional borrowings of 0.25 per cent of GSDP by the States but also reduce their contingent liabilities due to improvement in financial health of the discoms.

On the third-tier front, RBI officials observed in the report that increasing the functional autonomy of the civic bodies, strengthening their governance structure and financially empowering them via higher resource availability through self-resource generation and transfers are critical for building resilience and effective interventions at the grass-root level.

State governments should set up State Finance Commissions (SFC) at regular intervals, in line with the recommendations of FC-XV.

States may also urge rural and urban local bodies to make audited accounts available online in a timely manner to access grants.

In addition, States should undertake local body reforms as stipulated by the Centre to improve the financial autonomy of third-tier governments.

“Overall, sub-national fiscal positions are at an inflection point. Empowerment of the third-tier government presents an opportunity that can result in better and more effective pandemic crusaders in the future,” per the report.

The Conference was attended by the officials from the Ministry of Finance, Government of India, Controller General of Accounts, Comptroller and Auditor General of India and the Finance Secretaries of 24 States and one Union Territory.

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