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Informist, Friday, Sept. 12, 2025

 

By Aaryan Khanna

 

NEW DELHI – Senior officials from the Union finance ministry will meet the finance secretaries of state governments next week, according to two people familiar with the matter. The conference, which will be hosted by the Reserve Bank of India, is likely to take place between Sept. 16 and Sept. 18 in Mumbai. 

 

The meeting is held annually between the Centre and states and is not out of the ordinary, one of the people said. One or two of the secretaries from the finance ministry may attend the meeting, as well as additional or joint secretary level officials, the people said.

 

The meeting comes a month ahead of the 16th Finance Commission submitting its report, which will define Centre-state fiscal relations for five years starting 2026-27 (Apr-Mar). The commission has already visited all states and Union territories, and a majority of them, including Bharatiya Janata Party-led state governments, are seeking a 50% share in central taxes. Presently, as per the recommendatons of the 15th Finance Commission, the Centre shares 41% of the divisible pool of taxes with states. 

 

Beyond that, the Centre has announced its intent to shift its fiscal consolidation benchmarking to metrics favoured by rating agencies, such as the debt-to-GDP ratio and monitoring interest expenses. Rating agencies have repeatedly cited India's high general government debt as a detriment to securing a higher sovereign rating and that is where the states come in.

 

A chunk of India's general government debt comes from states' debt and it is widely expected that in its report, the 16th Finance Commission, headed by Arvind Panagariya, may give states a consolidation path to lower their debt stock. Last month, even while upgrading India's sovreign rating to 'BBB' from 'BBB-', S&P Global Ratings said that India's debt metrics continue to be weak.

 

On the borrowing side, heavy long-term state bond issuance sharply pushed up government bond yields in August. In meetings with the RBI over the past two weeks, bond market participants have urged the central bank – which acts as the debt manager to the government – to reduce the weighted average duration of bond supply, both from the Centre and states.

 

Some participants also suggested that state bond auctions be conducted using the uniform price method, which may help bring in more demand from long-term investors who would be assured all successful bidders would get the bonds at the same cut-off price. The current method of auction, the multiple price method, leads to differential pricing of successful bids and favours market makers and traders. This had pushed the spread of the 10-year state government bond over the 10-year benchmark gilt yield to its highest since April 2020 last week. A shift to the uniform price method may need the go-ahead of states, the other person said.  End

 

With inputs from Priyasmita Dutta

Edited by Avishek Dutta

 

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