: This time RBI (Reserve Bank Of India) has expressed concern about the rising subsidy bills of different states of the country. The Central Bank has said that if subsidies are not stopped, the wheel of development in the country will stop. Basically, RBI has given this information in Financial Stability Report of December 2022. It said that if the subsidy bill of the states continues to rise like this, they will not have money left for development and capital expenditure. Not only this, the expenditure of states on subsidies increased by 12.9 per cent in FY 2021 and 11.2 per cent in 2022. However, this figure saw a decline in FY2020. According to the report, the share of subsidy in total revenue expenditure of states was 7.8 percent in 2019-20. Which increased to 8.2 percent in 2021-22.
The central bank report said that subsidies have increased substantially in several states. And that is the point of concern. Even the Fifteenth Finance Commission report expressed concern over the increase in the share of subsidy in revenue expenditure of some states. Currently, many states are providing free electricity and water to common people. Similarly, rations are also being distributed at nominal prices in some states. And that has a direct impact on these statistics. According to a report by India Ratings this year, five states, including Punjab, may face serious economic problems. This is because the subsidy share of these states has increased significantly. Apart from Punjab, the list includes Chhattisgarh, Rajasthan, Karnataka and Bihar.
Inflation is expected to come under control: In this context Devendra Pant, Chief Economist of the organization said that due to competitive politics, states are spending more on non-merit subsidies. Most subsidies other than education are considered non-merit. Political parties in the country promise various subsidies in elections and fulfill those promises when they come to power. The burden falls on the government treasury. Due to this, development money comes less to the government. Already NK Singh, chairman of the 15th Finance Commission, has publicly opposed it.
The report said that the country’s retail inflation has moderated somewhat after being consistently above the satisfactory range since January. Also, necessary steps are being taken to bring it under control. However, the stability of core inflation and its growth may continue to be under pressure. According to the report, “RBI has taken swift action to control inflation. This is expected to bring inflation within a satisfactory range and closer to the target. Along with this, the fear of inflation will also be reduced.”
Why inflation increases: According to the Financial Stability Report, the Indian economy is facing multiple headwinds going around the world. But the financial system is in good shape due to strong overall economic factors and a healthy balance sheet, both financial and non-financial. However, inflation remains high. As such, it has now come under some control due to rapid monetary policy measures and supply side interventions. The RBI said that a strong US dollar boosts inflation. Because in that case imports become expensive. Due to this, the prices of those goods, which are imported in dollars, go up.
Also, the report said, commodity prices in local currency remained high as the rupee depreciated. Not only this, it also causes price rise and crisis. Regarding the domestic monetary situation, the RBI said that monetary policy has been tightened to bring inflation within a satisfactory range as per the target.
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Good news about NPA: It may be noted that the RBI has taken responsibility to keep inflation between 2 and 6 percent. The central bank mainly looks at retail inflation during the bi-monthly monetary policy review. After staying above the satisfactory level of 6 percent since January this year, it fell to 5.88 percent in November. Meanwhile, banks’ gross NPAs have fallen to a seven-year low of five per cent. In this context, the central bank said that the banking system is in a good position and is also adequately capitalized.