The 15th Finance Commission expects that the debt-GDP ratio will be at its peak at 33.3 percent in 2022-23.
Many municipal corporations informed about the reduction in expenditure in other areas due to Kovid management. 22 percent surveyed reported revenue loss of more than 50 percent during the second wave of the pandemic
The Reserve Bank of India (RBI) has released a report on Tuesday. In which it has been said that the states have kept the budget to completely reduce the deficit during the epidemic. Revenues have also improved after the easing or lifting of restrictions related to the pandemic, but local bodies are still badly affected. They should be allowed autonomy. For 2021-22, states have kept their consolidated gross fiscal deficit (GFD) to gross domestic product (GDP) ratio at 3.7 per cent, according to a Business Standard report.
According to the Revised Estimate for 2020-2021, this is a significant improvement with 4.7 percent. This information has been given in the RBI report on the year of the first wave of the pandemic. The report also said that local governments, such as urban and local bodies, have come under severe pressure, forcing them to cut spending and raise funds from different sources.
Survey and suggestions of local bodies
In its report, the RBI has named the local bodies as Third Tier Government and said that the burden of measures and management to avoid the epidemic was too much on these bodies. Municipalities, Gram Panchayats had to organize health care, quarantine, facilities for testing, vaccination camps at their level. Along with this, efforts were also made to maintain the supply of essential goods and services. Due to Kovid 19, the financial condition of local governments in India has deteriorated to a great extent in the years 2020-2021 and 2021-2022. In its report, RBI has also cited different estimates in this regard. Local authorities will lose around 15 to 25 per cent of their revenue in 2021, making it difficult to maintain the current level of service delivery.
Many local bodies cut other expenses due to Kovid management
During the pandemic in rural areas, gram panchayats had to struggle for funds. According to an RBI survey of 141 municipal corporations across the country, urban local bodies also faced similar difficulties. Of the 141 surveyed, 98 percent of corporations also reported increase in expenditure, fall in revenue collection and lack of funds from state governments during the second wave of the pandemic. Many municipal corporations informed about the reduction in expenditure in other areas due to Kovid management. In the survey, 22 percent reported revenue loss of more than 50 percent during the second wave of the epidemic, while this loss was up to 16 percent in the first wave.
RBI has suggested in this report that to strengthen the local bodies, it is necessary to increase their autonomy, strengthen their governing structure and make them financially empowered. For this it is also necessary to provide them more resources.
State governments in better shape
Interestingly, despite the reduction in revenue collection of the states in 2020-21, there was no reduction in their capital outlay because, as part of the Self-reliant India campaign on 12 October 2020, the states were given a special assistance scheme for capital expenditure. was announced. The RBI report said that for states, the ratio of revenue expenditure to capital outlay (RECO) will come down to 5.5 in 2021-22, from 6.7 in 2020-21.
RBI suggests that it is necessary for the states to channelize private investment and promote inter-temporal and inter-sectoral linkages, which will also increase production, employment and productivity, while keeping the capital outlay within a certain limit. RBI Governor Shaktikanta Das recently said that states that can afford to do so should increase capital expenditure so that it can drive overall growth through multiplier effects.
States will have to take effective steps
The RBI said in its report that as the impact of the second wave subsides, states should take “credible steps to address credit stability concerns”. The 15th Finance Commission expects the debt-GDP ratio to peak at 33.3 per cent in 2022-23 and 33.3 per cent in 2022-23, and then gradually fall to 32.5 per cent by 2025-26 .
The report quoted the 15th Finance Commission as saying that the power sector should improve, the condition of power companies should improve. Along with this, the autonomy of working of urban bodies should also be improved. Overall, the sub-national fiscal position is at an inflection point. With the empowerment of the third tier government, better and effective methods can be prepared to fight the epidemic like Kovid in future. This has been said in the RBI report.
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