State government finances have witnessed significant recovery after the pandemic-induced disruption. According to the latest annual study of state government finances by the Reserve Bank of India (RBI), the consolidated gross fiscal deficit of the states declined to 2.8 per cent of gross domestic product (GDP) in 2021-22 (provisional) from 4.1 per cent in 2020-21, the highest since 2004-05. This sharp consolidation was facilitated by higher tax collection as the economy recovered from the pandemic. For the ongoing fiscal year, in the aggregate, the states have budgeted for a fiscal deficit of 3.4 per cent of GDP, which is within the target indicated by the Centre. Given the revenue position in general, the states should be able to meet the target. While they have done well to manage the deficit, continued effort is required to bring down the debt stock.
In addition to notable consolidation, it is encouraging to see that the quality of expenditure by the states ha
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