Pointing out that there is a fine line between investing money in productive assets and giving freebies, Finance Minister Nirmala Sitharaman on Tuesday said that many states are “facing difficulties” with the accumulation of such giveaways. She asked questions about the states’ finances, and asked whether there was a way to rationalize the states’ committed spending, especially if it exceeded reasonable limits.
“Many states are facing difficulties because they are piling up. I am not mentioning anyone, any state. But there are states where, I’m afraid to say it, 70 percent of their revenues go to committed expenditures. And when I say committed, it is salaries and pensions, and they have to give it. I’m not saying don’t give. But 70 percent? With 30 percent, what else are you going to do? Especially in the growth stage when a lot has to be done to maintain finances,” Sitharaman said in response to a student’s question. On the need to balance “much-needed productive investment” “And what about this ratio? Do you need this many people? Isn’t there a way we can justify this? Will companies go this way? “Yes, we need doctors, we need education, we need medics.” “An ever-increasing number of populist schemes like freebies.”
There are problems, free gifts are one of them, and committed expenses are another, Sitharaman said. Referring to the discussion held by state finance ministers in the Goods and Services Tax (GST) Council, Sitharaman said the council members, who are state finance ministers and come from different political backgrounds, are keeping revenue considerations at the forefront of their priorities. “… (They) get very concerned when we cut something (tax rate) here, we cut something there. (They say) No, no, what will happen to revenue, please think about it, let’s study this. A very responsible position for finance ministers, you are here to generate revenue. But at the same time, not to harass people, not to burden people, not to impose too many taxes. You have to have efficient systems. You have to make sure there are no loopholes,” she said. But the job of the finance minister is to generate revenue, and the answer at the time of allocating funds to schemes at state or national budget time cannot be about giving up revenue, she said.
The Minister of Finance said that borrowing is then resorted to when revenues do not increase much and the levels of spending and committed freebies are high. Although the government will be able to meet the fiscal deficit figure for this fiscal, Sitharaman said, from next year onwards, the government’s focus will be on the debt-to-GDP (ratio) and both states and the Center will have to stick to it. “Once your committed expenditure is too large, or when the freebies are too many, once you are not able to increase your revenue, you tend to borrow. But you have a limit on the amount you can borrow whether it is a state or whether it is a state. So I am putting it in FRBM – Fiscal Responsibility and Budget Management – and so is the case for states. It is important for us. To achieve Vixit Bharat, we need to be consciously on the path to reform and introducing prudent financial management is the responsibility of every minister,” she said. “Financial”.
The Center set a fiscal deficit target of 4.4 percent of GDP for the fiscal year 2025-2026. Following the COVID-19 pandemic, global debt levels in major emerging economies have worsened. The government is working to reduce the debt-to-GDP ratio, which refers to the share of a country’s national debt to GDP. In 2017, the NK Singh Committee recommended a ceiling on general government debt of 60 per cent – 40 per cent for the Center and 20 per cent for states. India’s general government debt level is currently more than 80 per cent, and the Centre’s share is about 57 per cent. In February, in a major shift from making the fiscal deficit the sole operational target for fiscal consolidation, the government made clear its intention to move to the debt-to-GDP ratio as the fiscal pillar from FY27 onwards. It has targeted a debt-to-GDP ratio to fall to 50±1 percent by March 31, 2031.
Stay up to date with the latest developments – click here to follow us on Instagram
© Indian Express Private Limited
(Tags for translation)Finance Minister Nirmala Sitharaman
