Fiscal Woes Loom: States Struggle with Freebie Fallout

Emkay Global's report highlights growing fiscal pressures on several states due to freebies, leading to potential cuts in capital investments. The fiscal deficit-to-GDP ratio is expected to remain high, prompting states to curb spending. Increased borrowing has not translated into higher expenditure, exacerbating the fiscal strain.

Emkay Global's recent states finance report reveals mounting fiscal challenges for several states, attributed largely to the fiscal impact of freebies. This financial strain is likely to impact capital investments adversely, as states grapple with ballooning expenditures.

The report indicates that while states may attempt to streamline expenses related to these schemes, fiscal pressures appear inescapable. A projected increase in the fiscal deficit-to-GDP ratio further compounds these challenges, with reductions in discretionary capital expenditure anticipated.

The report also highlights that despite recent surges in borrowing, higher spending has not materialized, thereby intensifying fiscal stress. Notable examples include Maharashtra's reduced funding for certain schemes, highlighting the fiscal adjustments being considered across various states.

(With inputs from agencies.)