Tighten your fiscal belt or sink: IMF ED Krishnamurthy Subramanian warns select states

New Delhi: States with relatively high revenue deficits such as Punjab, Himachal Pradesh, Kerala, West Bengal and Andhra Pradesh must take a leaf out of their healthy counterparts' book, Krishnamurthy V Subramanian has told ET, adding that the fiscal position in those states is a matter of concern even as the overall situation seems to have improved from the peak of the pandemic...

Likening their fiscal situation to "aamdani atthanni kharcha rupaiya" (spend twice than you earn), Executive Director of the International Monetary Fund (IMF) said "there is no option for these states but to implement some necessary, though not popular, decisions to tighten their fiscal belts by reducing unproductive expenditures."..

"These states should look to learn from Uttar Pradesh, Maharashtra, Madhya Pradesh, Karnataka and Tamil Nadu, which together accounted for more than 40% of the combined capital outlay undertaken by all states during the last five years," Subramanian said in an interview over phone and email from Washington...

Subramanian, who had earlier served as India's Chief Economic Advisor, further said the states with large revenue deficits will find it tough to get out of debt as these are also the states where the growth rate of state GDP is not so high...

He then said, "And most crucially, as the RBI report on state finances found, GST implementation has increased tax buoyancy for the states, which suggests that this overall improvement in the fiscal situation of states can be sustained."..

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