States' fiscal position deteriorated in 2008-09: RBI study

The consolidated fiscal position of state governments has shown deterioration in 2008-09 (revised estimates) on account of the overall macroeconomic slowdown following the global financial crisis, the Reserve Bank of India (RBI) said in `State Finances: A Study of Budgets of 2009-10', released today.

To address the overall macroeconomic slowdown, the central government has allowed state governments to raise additional market borrowings to the extent of 0.5 per cent of gross state domestic product (GSDP) during 2008-09 and increase the limit of fiscal deficit to 3.5 per cent of GSDP for undertaking capital expenditure, thereby providing them additional fiscal space.

Further, in the Union Budget 2009-10, states have been allowed to raise additional market borrowings of 0.5 per cent of GSDP, thus increasing the limit of GFD to 4.0 per cent of GSDP during 2009-10.

Gross fiscal deficit (GFD) of states is expected to increase to 3.2 per cent of GDP in 2009-10 (budget estimates) compared with 2.6 per cent of GDP in 2008-09 (revised estimates), RBI said in its study.

Revenue account of state governments turned from a surplus of 0.2 per cent in 2008-09 (RE) to a deficit of 0.5 per cent of GDP in 2009-10 (BE).

Disaggregated level fiscal indicators reveal that most of the states are faced with deterioration in revenue balance and increase in the level of GFD. State-wise, revenue account of four States, viz, West Bengal, Punjab, Kerala, and Rajasthan recorded revenue deficit during 2008-09 (RE), the study pointed out.