Informist, Friday, Oct 15, 2021

NEW DELHI – State governments should review all their existing schemes and discontinue those that have outlived their utility, according to Reserve Bank of India Governor Shaktikanta Das.

"Once initiated, a scheme cannot have a permanent life," Das said in a speech at an event hosted by LSE School of Public Policy on Monday.

"It should have specific targets. And once those targets have been reached, the scheme should be withdrawn. Or, if the targets are not being achieved, then there is something inherently wrong with the scheme and the programme needs to be modified."

All new schemes should have a sunset clause to ensure that a mechanism exists such that they can be rigorously reviewed, he said.

"Today, like never before, I think there is a need for bringing in a strong element of prudence in public expenditure. There are competing demands on every state government. The states need to undertake an evaluation of their competing demands," Das said.

The coronavirus pandemic has hit finances of state governments hard. With the pool of funds emanating from the Goods and Services Tax compensation cess proving to be inadequate to bridge shortfall in revenues under the new indirect tax regime, the central government has been forced to borrow from the market on behalf of the states and pass on the money to them.

However, even as Das called on states to be prudent on public expenditure, he exhorted them to step-up capital expenditure, especially on infrastructure, as India could not afford a repeat of the post global financial years, when capital expenditure was lowered to meet fiscal deficit targets.

"States' debt-to-GSDP (gross state domestic product) starts from 17% and goes up to 42%. So there are quite a few states which have a low debt-to-GSDP ratio today. Which is very good. But I think they have space to step up their expenditure, especially relating to infrastructure, education, and health," Das said.

"When a state which can afford more spends, naturally it should be able to kick-start an investment cycle whose spillovers will flow to other states and contribute to the country's GDP," he added.

The Indian economy is forecast to grow 9.5% in 2021-22 (Apr-Mar) by the RBI, although the near double-digit growth rate will be largely due to a favourable base effect following a 7.3% contraction in 2020-21.  End

Reported by Siddharth Upasani

Edited by Saji George Titus

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