Non-merit Subsidies
RBI flags concern over rising subsidies by states, says will hinder developmental and capital spending
Mumbai/IBNS: The Reserve Bank of India (RBI) expressed concern over the increase in subsidies announced by the states underscoring the adverse impact on their financial health.
The central bank noted that the rising expenditure on non-merit subsidies may raise the share of committed expenditure in states' spending.
“This is likely to constrain the fiscal space available to states for developmental and capital spending,” the RBI said in its Financial Stability Report, December 2022
States' expenditure on subsidies has grown by 12.9% and 11.2% in FY21 and FY22 respectively after contracting in FY20. Commensurately, the share of subsidies in their total revenue expenditure has also risen from 7.8 percent in 2019-20 to 8.2 percent in 2021-22, RBI said.
"Notwithstanding the gains from fiscal consolidation, there are concerns about rising subsidies announced by many states. The 15th Finance Commission’s report has also flagged the issue of the rising share of subsidies in some of the states’ revenue expenditures," the RBI said.
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