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Post at: Jun 13 2022

SBI Report on Freebies

Why in News?

  • SBI released its Ecowrap Report highlighting  that states need to reset their spending and cut freebies on 8 April 2022.

Important Points of the Report

  • Several states are indulging high spending on populist scheme such as form Loan waives, free electricity, revival of old pension scheme etc.
  • According to Report
    • Telangana has committed 35% of revenue receipts to finance populist scheme.
    • Some figure for other states like Rajsthan, Chhatisgarh, Andhra Pradesh Bihar, Jharkhand, West Bengal and Kerala ranges between 5-9%.
    • In the terms of percentage of their own tax revenue figure is as high as 53% for some states.
  • Also According to Report-
    • 6 States had reported fiscal dicit more than 4% of GSDP.
    • 7 States had exceeded their budget target
    • For Bihar Fiscal deficit 8.3% of GSDP and for Assam 4.5% of GSDP.
  • In some instances, the Good and Services Tax (GST) revenue forms from the centre the more than one - fifth of state tax revenue
  • Some states had been demanding an extensian of GST Compensation scheme.

Expert Opinion

  • NITI Ayog member Ramesh Chand raised the concern.
  • "Since we are spending more and more money for support on subsidies, the measure which are needed to give push to growth and efficiency are not working. As a result, we are caught in vicious cycle.
  • He flagged that India had already hit the limit of 10% state support to agriculture.
  • 15th finance commission termed freebies as "quick passport to fiscal disaster.
  • It mooted the idea of issuing credit rating to states. 

Conclusion

  • The constitution of India under Directive Principals of State Policy (DPSPs) provision for a welfare state for the upliftment of standard of lives of people. But any efforts towards can not be achieved without due regard for financial discipline in governance.

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