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Income support, UDAY driving fiscal slippages: RBI

15th Finance Commission holds meeting with Reserve Bank of India Governor Shaktikanta Das

The Reserve Bank of India (RBI) has voiced its concern over government schemes such as income support, revival package for power distribution companies and farm loan waivers as such schemes led to fiscal slippages.

In a presentation to the 15th Finance Commission, the RBI said the UDAY scheme, recent income support schemes of the government and farm loan waivers could drive fiscal slippage in the revised estimate for 2018-19.

The Commission, headed by Chairman N.K. Singh, on Wednesday held a detailed meeting with RBI Governor Shaktikanta Das and deputy governors.

In the Interim Budget presented in February, the government announced a cash transfer scheme, for small and marginal farmers with landholdings of up to two hectare, of ₹6,000. The government had allocated ₹75,000 crore towards the scheme for financial year 2020.

The RBI made a detailed presentation to the Finance Commission on State government finances for 2019-20.

Significant deviation

“Fiscal deficit of States is budgeted to be lower in 2019-20 BE (budgeted estimates), but RE (revised estimates) and actuals deviate significantly — reflecting poor fiscal marksmanship,” a statement issued by the government after the meeting said. The central bank noted that outstanding debt as percentage of GDP had been rising despite moderation in interest payment as percentage of revenue receipts.

Expenditure codes

Some of the other issues that were discussed during the meeting include public sector borrowing requirements and continuity of the Finance Commission and development of expenditure codes, especially given that expenditure norms vary from State to State

On the continuity of the Finance Commission, the government statement said “felt that this was required more in view of the fiscal management requirements of the States, especially given the absence of mid-term reviews of awards granted by the Finance Commission, as it used to happen earlier with the awards granted by the Planning Commission.”

During its two-day visit to Mumbai, the Finance Commission is also meeting banks, financial institutions and economists.

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