The Reserve Bank of India (RBI) on Thursday said expenditure quality at the sub-national level in India has somewhat improved with the implementation of fiscal responsibility and budget management (FRBM) rules."The existing levels of high revenue and non-development expenditure in states' total spending is of concern as it can inhibit growth at the state level, it said in a statement following release of areport titled "State Finances: A Study of Budgets of 2015-16", an annual publication which is the primary source for disaggregated state-wise fiscal data.The report said empirical analysis indicates that expenditure on social and physical infrastructure could have growth augmenting effects.
The RBI also said the quality of expenditure could be improved through prioritisation and rationalisation that would generate fiscal space for raising the share of capital expenditure, which is conducive for growth.Fiscal consolidation by states should emphasise revenue augmenting measures, improving the viability of power distribution companies and rationalisation of centrally sponsored schemes, while reining in slippages in the gross fiscal deficit from the path of fiscal discipline and the double digit growth in outstanding liabilities of state governments, it said.The central bank also said reforming state level public enterprises and the proposed implementation of the consumption-based destination-centric goods and services tax (GST) could strengthen state finances.