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Maharashtra Leads Fiscal Health Report, Chhattisgarh Surprises at Second Place

In a recent development, Maharashtra has emerged as the front-runner in the Fiscal Health Report, showcasing commendable financial stability. Surprisingly, Chhattisgarh, a state often associated with economic challenges, secured an unexpected second position in the rankings.

Key Criteria for Assessment

The Fiscal Health Report’s assessment is based on four crucial fiscal parameters:

  1. Fiscal Deficit: This indicator evaluates the gap between a state’s total expenditures and its total revenue. A lower fiscal deficit indicates better financial management.

  2. Own Tax Revenue: The proportion of revenue generated by a state through its internal taxation system reflects its self-sufficiency in funding its operations.
  3. State Debt Levels: The extent of a state’s indebtedness relative to its economic output, as measured by the Gross State Domestic Product (GSDP), gauges its ability to manage financial obligations.

  4. Interest Payment to Revenue Receipts: This parameter underscores the ratio of interest payments on debts to the overall revenue earned by the state, revealing its debt servicing capability.

Chhattisgarh’s Astonishing Second Place

Despite its reputation as one of the economically challenged states in the nation, Chhattisgarh’s second-place ranking in the Fiscal Health Report is raising eyebrows. The assessment sheds light on its relatively stable fiscal condition, defying conventional perceptions.

Weakest Performers: Bengal, Punjab, and Kerala

  • The Fiscal Health Report highlights the challenging fiscal situations of Bengal, Punjab, Bihar, Rajasthan, and Kerala.
  • These states demonstrate vulnerability to debt sustainability risks due to weak fiscal and debt metrics, a concern predating the pandemic.
  • The Reserve Bank of India (RBI) had issued a warning to states about these risks in a June 2022 report.

Debt/GSDP Ratio: A Growing Concern

  • The report raises concerns about the debt-to-GSDP ratio of states.
  • Despite double-digit nominal GDP growth in recent fiscal years, the current year is anticipated to see growth in the 9-9.5% range.
  • This suggests that the states’ debt/GSDP ratio might surpass the latest budget estimate, potentially impacting their fiscal health.

Backing from RBI’s June 2022 Warning

The report aligns with a cautionary statement from the Reserve Bank of India (RBI) in June 2022, which emphasized the concerning fiscal situation of these states. The RBI’s warning reinforces the need for prompt measures to address the economic vulnerabilities that existed even before the pandemic struck.

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