RBI report on State Finances: A Study of Budgets of 2021 – 22

The Reserve Bank of India recently released its report on “State Finances: A Study of Budgets of 2021 – 22”. According to the report, the combined debt – to – GDP ratio of states is to remain at 31% till March 2022. This is worrying as the set target was 20%.

Key Findings

• The report says that the finances of municipal corporations and urban local bodies have deteriorated.
• There has been lack of funds from the state governments during the second wave of COVID-19.
• The revenue of 70% of municipal corporations declined.
• 43% of the participants of the survey said that they used grants from the state governments.
• Around 19% reported that they used reserve funds to meet the resource gap.
• 6% of the corporations borrowed from state government
• 2% of the corporations borrowed from banks

Why did the revenue decrease?

As the densely populated cities and districts emerged as hotspots, the local governments faced shortage in revenue. They were severely affected during the second wave of the pandemic.

What is the need of the moment?

• RBI suggests that there is a need to increase financial autonomy of the civic bodies. It is essential to strengthen the governance structure of the civic bodies.
• The State Governments should set up the State Finance Commissions at regular intervals in order to prevent such losses in the future.

Month: Current Affairs - December, 2021