The central government has signalled that it will not move on the existing deficit criteria that control funding to the states, despite the fact that numerous state governments headed by the opposition are pursuing populist policies that will harm their fiscal positions.
Officials from the Ministry of Finance have advised BT TV that states need to take charge of their financial situations. “It is not the Centre’s problem. The states need to balance their budgets”, an official said.
Recent promises made by the Congress party in Karnataka include providing monetary assistance of Rs 2,000 per month to women who are the primary breadwinners of their families, providing free electricity of up to 200 units to every household, allocating Rs 3,000 per month to young people with bachelor’s degrees and Rs 1,500 to those with diplomas, distributing 10 kilogrammes of rice to each individual per month, and allowing women to ride for free on state-operated buses.
The overall annual cost of the freebies for the state of Karnataka would equal Rs 65,000 crore, which is more than the state’s budget estimations of expenditures can accommodate.
It is anticipated that Punjab’s fiscal deficit would exceed 4% as a result of extra expenditures; this represents a rise of 50 basis points in comparison to the expenditures that were projected.
A state is only permitted to borrow 3% of its yearly gross state domestic product from the central government, with an extra 0.50% allowed if specific reforms are met in the areas of electricity distribution and public transport.
Prime Minister Narendra Modi has issued a stern warning against the practise of doling out favours in exchange for votes, describing it as “very dangerous” for the growth of the nation.
The old pension programme, often known as the OPS, is another issue that has the potential to put strain on the state’s treasury. As a result of this, retiring government workers were eligible to receive a monthly pension equal to fifty percent of their last complete wage. The amount is frequently amended by pay commissions, and it continues to increase in tandem with increases in the dearness allowance rates that have been implemented.
The OPS had been in effect in India until 2004, but the Reserve Bank of India issued a warning in January to state that it should not be reinstated because doing so would make it more difficult for the states to meet their budgetary obligations in the years to come. The five aforementioned states have informed the Central government of Rajasthan’s, Chhattisgarh’s, Jharkhand’s, Punjab’s, and Himachal Pradesh’s decision to return to the OPS.
