RBI Warns States: Populist Schemes Strain Infrastructure Investment

The Reserve Bank of India (RBI) warns that populist schemes like free electricity and transport are affecting the financial health of states, limiting their ability to invest in vital infrastructure. The RBI stresses the need for fiscal consolidation and prioritizing developmental spending for financial stability and growth.

In its latest report, the Reserve Bank of India (RBI) warns that populist initiatives such as free electricity, free transport, and monetary aid programs are compromising the financial health of states, curtailing their capacity to invest in essential infrastructure.

The report indicates that while such measures offer immediate relief, they heavily strain state finances, potentially crowding out necessary resources needed for social and economic infrastructure development.

The RBI also flags pressing issues like high debt-to-GDP ratios and ballooning subsidy burdens, urging states to focus on fiscal consolidation and prioritize capital spending to ensure long-term financial stability.

(With inputs from agencies.)