Delhi Delhi: Despite good tax transfers from the Centre to the states, the fiscal health of the states is struggling, a State Bank of India report said. The report noted a general deterioration in the fiscal sustainability of states barring a few exceptions. It also pointed to regional imbalances arising from differences in the ability of states to manage their local economies.
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The report comes amid an ongoing debate on the transfer of financial resources from the Centre to the states. According to the report, 59.9 per cent of the Centre’s gross tax revenue is transferred to the states. This transfer includes 33.3 per cent from the divisible pool of central taxes, 5.4 per cent under various schemes such as grants and loans for externally aided projects, disaster relief assistance and capital expenditure loans.
Additionally, 19.9 per cent of the transfer is in the form of grants to rural and urban local bodies, State Disaster Response Fund (SDRF) and revenue deficit grants.It said that “the fiscal health of states has witnessed a general deterioration, with some exceptions in the finances of states using standard rations”.
These imbalances require careful financial management, especially given the free movement of workers across states.The report suggested that expenditure prioritisation and greater transfer of financial resources to lower levels of government could help improve public service delivery.
Some of the measures include expenditure prioritisation and greater transfer to lower levels of government for better public good provision”, it said.
The report also pointed out that the total financial transfer from the Centre to states is Rs 25.6 lakh crore. Of this, Rs 14.2 lakh crore comes from the divisible pool, while the remaining Rs 12.4 lakh crore comes from the Centre’s consolidated fund. These numbers indicate that states receive a large share of the country’s tax revenues, which are intended to support their development and welfare initiatives.
Despite these substantial transfers, states continue to face fiscal challenges. The report emphasises the need for better fiscal management at the state level. It suggests that states should focus on optimising their expenditure and increasing financial autonomy at lower levels of government. This will help ensure efficient use of resources and improve overall economic stability.
