RBI Warns on States' Fiscal Risks Amid Sops Surge

A Reserve Bank report cautions states against sops like farm loan waivers and free utilities, which could hinder social and economic infrastructure investment. Despite fiscal consolidation progress, rising subsidies could strain resources. States must focus on fiscal reforms and improve expenditure quality to maintain economic stability.

The Reserve Bank of India's recent report highlights the potential fiscal risks for states as they increase spending on sops such as farm loan waivers, free electricity, and transport services.

This trend, according to the report, could deplete critical resources needed for social and economic infrastructure development. While states have managed to keep their gross fiscal deficit under check, spending on subsidies continues to rise, raising concerns about long-term fiscal health.

With state-specific Fiscal Responsibility Legislations in place, along with tax reforms, states have bolstered their finances, but the financial distress of state-owned electricity firms remains a challenge. The RBI urges states to prioritize fiscal responsibility and capital spending improvements.

(With inputs from agencies.)