A day after the government released buoyant tax figures because of the goods and services tax (GST), the Reserve Bank of India cast doubts over short-term revenue mobilisation.
Besides, farm debt waivers in some states could mar fiscal consolidation efforts there, it said. This, the report said, could impact fiscal consolidation at both the Centre and state levels, as this fundamental reform gains pan-India traction.
According to figures released by Finance Minister Arun Jaitley on Tuesday, the Centre and state governments have earned Rs 92,283 crore from the GST in July, against a target of Rs 91,000 crore. This even as 36 per cent of assessees did not file returns.
On Wednesday, the RBI warned: "Additionally, state government finances are likely to face several challenges during 2017- 18. First, the announcement of farm loan waivers by four state governments and the potential announcement by several others pose a major fiscal risk over the medium term." Besides impacting credit discipline, vitiating credit culture and dis-incentivising borrowers from repayment, a loan waiver might have a destabilising impact on the yields of state development loans, posing a higher interest burden for the states, the central bank cautioned.
A fallout could be that the general level of interest rates might firm up and private borrowers might be crowded out. The committed liabilities of states might increase in case they decide to implement the recommendations of their own pay commissions in 2017-18, it cautioned.
The high level of state government guarantees constituted a major fiscal risk. The interest liabilities of states that have participated in financial restructuring of distribution companies (through the Ujwal DISCOM Assurance Yojana) would increase, it warned.
Many states (particularly the fiscally prudent ones), which were earlier refraining from seeking additional funds through market borrowings, might now borrow using the flexibility provided by the Fourteenth Finance Commission, it added.