Why in the News?

According to the RBI report on state finances, India’s fiscal deficit has increased from 2.8% of GDP in FY22 to a projected 3.2% in FY24, signaling that fiscal consolidation is being side-lined in favor of increasing expenditure.
- Capital expenditure (capex) has risen from 2.2% of GDP in FY23 to a budgeted 3.2% in FY24, indicating increased investment in assets for future growth.

Fiscal position of the States as per the Report

- - The Gross Fiscal Deficit (GFD) of states is projected to rise from 2.7% of GDP in FY2022-23 to 2.9% of GDP in FY2023-24.
  - This rise indicates that fiscal consolidation has been put on hold, with states continuing to spend more than their revenues.
  - Many states have budgeted for fiscal deficits above the 3% of GSDP mark, including Andhra Pradesh, Himachal Pradesh, Madhya Pradesh, and West Bengal, among others.

- - Revenue Expenditure is expected to increase to 14.6% of GDP in FY2025, up from 13.5% in FY2024, indicating a rise in the current expenditure of states.

- - States have ramped up their capital expenditure (spending on creating assets), which has increased from 2.2% of GDP in FY2023 to 3.2% of GDP in FY2024.
  - This increase is in line with the government’s focus on infrastructure and long-term growth.

- - State revenues are projected to increase from 13.3% of GDP in FY2024 to 14.3% in FY2025, driven by improved tax collections.
  - There has been a marked improvement in own tax revenue buoyancy compared to the pre-Covid period.

- - The debt-to-GDP ratio for states has increased slightly to 28.8% in FY2024, from 28.5% in FY2023.
  - States with high fiscal deficits tend to have debt-to-GDP ratios above the national average, which suggests they have been sustaining deficits for a longer time.

- - States have shifted significantly towards market borrowings.
  - The share of market borrowings in financing the fiscal deficit has increased from 17% in 2005-06 to 79% in FY2024-25.

- The report suggests prudent management of subsidies, rationalization of centrally sponsored schemes, debt consolidation, and the adoption of climate and outcome budgeting to improve state fiscal health.

[2018] Consider the following statements:

The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt to GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments.
The Central Government has domestic liabilities of 21% of GDP as compared to that of 49% of GDP of the State Governments.
As per the Constitution of India, it is mandatory for a State to take the Central Government’s consent for raising any loan if the former owes any outstanding liabilities to the latter.

Which of the statements given above is/are correct?

(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3