For Centre & state finances, a reckoning, Pg10

Key Highlights:

• In April-November 2025-26, the Centre's fiscal deficit reached 62.3% of the full-year budget estimate.
• The primary deficit for the same period hit 78.9% of the whole-year target.
• GST rate cuts have impacted the Centre's tax revenues, which are at 49.1% of budgeted collections.
• Interest rates on state borrowings have increased despite the RBI's repo rate decreasing from 6.50% to 5.25%.
• Many states have liabilities exceeding 30% of their GDP, with some over 35%.

Detailed Insights:

• The Centre faces pressure to cut expenditures to meet deficit targets due to lower tax revenues.
• States like Andhra Pradesh and West Bengal are borrowing at higher interest rates compared to the previous year.
• The combined fiscal deficit of states has increased from 2.4% to 3.2% of GDP between 2018-19 and 2024-25.
• States like Punjab, Himachal Pradesh, West Bengal, Bihar, Kerala, and Rajasthan have high outstanding liabilities.
• Governments are spending more on freebies and cash transfers, potentially impacting long-term economic growth.
• A weak government balance sheet could hinder growth by crowding out private sector borrowings.

Key Concepts Involved:

• Fiscal Deficit: The difference between a government's total revenue and its total expenditure.
• Primary Deficit: Fiscal deficit excluding interest payments on borrowings.
• GDP (Gross Domestic Product): The total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.
• Repo Rate: The rate at which the central bank lends money to commercial banks against the security of government securities.