States’ Budgets Prioritising Welfare-Centric Schemes Likely to Hinder Infra Investments: RBI
�New Delhi:�Reserve Bank of India (RBI) article on Tuesday said sops in states’ 2024-25 budgets like welfare-centric schemes may hinder critical infrastructure investments. The central bank also urged to focus on infra, said the RBI article. "Besides, fiscal space exists for boosting capex in FY25 H2, aided by robust tax revenues and restrained spending," the RBI article said, adding that the views expressed in the article are those of the authors and do not necessarily represent the RBI's stance.
According to the article in the RBI December bulletin, several states’ 2024-25 Budgets have introduced sops like free electricity, transport, and monetary allowances, which may divert resources from essential social and economic infrastructure projects. "The gross fiscal deficit as a percentage of the budget estimate moderated in April-September FY25 compared to H1 FY24, supported by robust tax collections, reduced revenue expenditure growth, and lower capital outlays," it said.
"States such as Haryana, Punjab, Maharashtra, and Jharkhand announced welfare schemes, including free electricity for agriculture, allowances for unemployed youth, and monetary assistance for women. However, such spending could compromise long-term development priorities," the article noted.
On the revenue side, the Centre benefited from higher tax receipts, both direct and indirect, alongside a substantial surplus transfer from the RBI, boosting non-tax revenue. "Despite a slowdown in H1 FY25 due to the model code of conduct for elections, government spending is expected to accelerate in the second half of the fiscal year," it noted.
The Centre has achieved over half of its budgeted revenue target in H1 FY25 while containing expenditure to less than 50 per cent of its full-year projection. "This positions the government favourably to meet its gross fiscal deficit target of 4.9 per cent of GDP for FY25," it said.
It further noted that social sector spending by Indian states has risen sharply, from 5.4 per cent of GDP in 2005-06 to 8.1 per cent in FY25 (Budget Estimates). "Prioritisation of education, healthcare, and other critical services has grown, but the article stressed that the effectiveness of this spending depends on achieving tangible outcomes," the article noted.
