State of State finances Report 2023-24

Published: 16th Nov, 2023

Context:

As per the report on State finances, it has been found that States face substantial challenges in their finances, marked by high committed expenditure and a persistent revenue deficit.

Background:

Recently, the Union Ministry of Statistics and Programme Implementation has also released figures for the Gross State Domestic Products.
The economies of 19 states and Union Territories exceeded their pre-Covid levels, with 7 recording double-digit growth rates during 2021-22.
The growth rates of 11 states including Gujarat and Maharashtra were not available for 2021-22.

About the Report:

The findings are based on the 'State of State Finances' report by PRS Legislative Research.
Objective: The report is shedding light on the complex fiscal landscape for states Post-GST and Post-pandemic.

Key Findings:

State GST (SGST) accounts for over 40% of states’ own tax revenue but SGST to GSDP ratio continues to be lower than pre-pandemic level.
SGST revenue is also lower than the level of guaranteed revenue for five years.
In FY24, 11 states have budgeted a revenue deficit–gap between revenue expenditure and receipts. Of these, Andhra Pradesh, Himachal Pradesh, Kerala, Punjab, and West Bengal did so after accounting for revenue deficit grants.

About Gross State Domestic Product (GSDP):

Gross State Domestic Product (GSDP) is a measure in monetary terms, the sum total volume of all finished goods and services produced during a given period of time, usually a year, within the geographical boundaries of the State, accounted without duplication.
- The State Domestic Product is classified under three broad sectors such as Primary sector, Secondary sector and Tertiary sector and is compiled economic activity wise as per the methodology prescribed by the National Accounts Division, National Statistical Office, Ministry of Statistics & Programme Implementation, and Govt. of India.

Over the past several years, states have spent around 8-9% of their revenue receipts on subsidies, with a significant portion on power subsidy.

Report Outcomes:

Despite overall state revenue returning to pre-pandemic levels, GST collections as a percentage of Gross State Domestic Product (GSDP) remain below the pre-GST era.
The cessation of GST compensation grants in June 2022 has adversely affected some states, highlighting the need for revenue rationalization.

Challenges Highlighted:

States grapple with high committed expenditure and persistent revenue deficits.
Non-merit subsidies have increased, pension reforms are being reversed, and state-owned discoms face financial strain.

CURRENT AFFAIRS FOR UPSC IAS

State of State finances Report 2023-24