The Reserve bank recently released a report looking at the risks to states' fiscal positions. It has published the list of states which have declared free for the financial year 2022-23. Among them, punjab is ranked first, andhra pradesh is second and jharkhand is third. tamil Nadu is not included. The RBI, in its report, said: According to the latest data from the Auditor General of india (CAG), state governments' expenditure on subsidies grew by 12.9 percent in 2020-21 and 11.2 percent in 2021-22. Correspondingly, the share of grants in the total revenue expenditure of the states was 7.8 percent in FY 2019 and increased to 8.2 percent in FY 2021. For example, jharkhand, Kerala, Odisha, Telangana, and Uttar Pradesh are the top five states with the highest increase in subsidies in the last three years.
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many states spend more than 10 percent of their revenue expenditure on subsidies. Subsidies are known to siphon off money for other worthwhile purposes. Recently, state governments have started disbursing a portion of their grants as freebies. Although there is no precise definition of gratuities, it is important to distinguish between those that provide economic benefits such as public distribution schemes, employment guarantee schemes, and education and health schemes.
At the same time, free electricity, free drinking water, free public transport, waiver of outstanding agricultural loans, etc. are often considered freebies. This will weaken the confidence that the loan will be returned. Cross-subsidization reduces the incentive for private investment by taking the profits of one to finance the other and changing prices. Withholding work at current rates of pay. As a result, labor force participation falls.Some freebies can benefit the poor if properly targeted. But their benefits need to be weighed against their huge financial costs. Also, providing free electricity and water is known to accelerate environmental and watershed destruction.
In the current financial year, the expenditure on gratuities ranges from 0.1 to 2.7 percent of the gross domestic product (GSTP) of the states, to a compilation of information from various sources including the budget text. In some heavily indebted states like andhra pradesh and punjab, the cost of gratuities exceeds 2 percent of the GSTP.
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