State Govt Finances Better On Recommendation

The financial position of most State Governments is much better, on account of the implementation of measures recommended by the 12th Finance Commission. But States have to watch out against a few challenges such as the impact of the recommendations of the Sixth Pay Commission, according to Dr Y.V. Reddy, Governor of the Reserve Bank of India.

Speaking at the Annual Day celebrations of the Madras School of Economics today, Dr Reddy said that State Governments were not spending enough on education and health, which remain low at around 2.5 per cent and 0.7 per cent of GDP respectively.From the RBI''s standpoint, initiatives relating to credit culture, financial literacy, financial inclusion and priority sector lending would continue to remain high on the policy agenda. On the improved management of finances by States, the RBI Governor said that all but eight States had projected revenue surpluses for the current year.

The aggregate revenue surplus of all States has been budgeted at 0.4 per cent of the GDP. Open market borrowings of the State Governments, which used to be at fixed rates on allocation basis a decade ago, are now being conducted entirely through auction route.Further, guarantees given by State Governments are also on the decline. Guarantees were placed at 6.5 per cent of the GDP as of March 31, 2005 compared with eight per cent at the end of March 2001. Also, cash management of State Governments has shown a marked improvement over the years.

States are making less use of RBI''s short-term lending facility - ways and means advances - compared to previous years. The Governor also said that on the other hand, there are a few issues of concern. States should develop a calendar for open market borrowings just as the Government of India does.