We all see the problem Sri Lanka is going through. The single most reason behind the plight is: marry making on borrowed money.
Well, though India is not in the same situation, the below 3 states of India have unreasonable levels of debt and if they don’t show restraint could end up in a situation like Sri-Lanka.
What is debt to GDP ratio? It is the ratio of loans made by the state Govt to the total GDP of the state.
- Punjab (Debt-to-GDP ratio : 53%) COVID made the situation worse. But the state was in dire streets before due to freebies offered to Mandi Dalals (the same people who protested the farm laws), free electricity, free fertilizers and among others. The state has consistently underperformed vis-a-vis its capital expenditure targets.
- Rajasthan (Debt-to-GDP ratio :39.8%): The state had almost halved its debt-GDP ratio to 24% in FY15 from about 47% in FY05. One reason for the steady rise in the ratio thereafter was implementation of the UDAY scheme for power distribution entities under which the bulk of discoms’ debt got shifted to the state’s budget.
- West Bengal (Debt-to-GDP ratio :38.8%): The state suffered due to COVID. Plus the state gives a lot of subsidies on food, electricity including pension to Mullahs.
States like Gujarat and Maharashtra have debt-to-GDP ratio of 23% and 20% respectively which is sustainable.
It is hence important that states follow fiscal discipline, devise robust tax collection mechanism, dole subsidies to the needy and cut down unnecessary Govt expenditure. Or else, some of the states may end up like Sri Lanka.
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