Insights from the Reserve Bank of India's Report

The Reserve Bank of India's recent report provides critical insights into state finances, showcasing how states manage their revenue and expenditures. States earn income through taxes and central government transfers, impacting essential services like education and infrastructure. While fiscal deficits have improved to below 3% of GDP, indicating better financial discipline, state debt remains concerning at 28.5%, which is significantly higher than the recommended level. Innovations in revenue collection, particularly through selling bonds known as State Development Loans (SDLs), highlight a move toward greater self-reliance for states, although this also increases their exposure to market risks.