State Fiscal Indiscipline Threatens India's Sovereign Borrowing Costs

The Economic Survey warns that state fiscal indiscipline threatens India's sovereign borrowing costs. Unconditional cash transfers may crowd out growth investments, while global investors scrutinize fiscal health. India faces high inflation and asset valuation risks, but unemployment rates and female workforce participation have shown positive trends.

The Economic Survey has raised alarms over state fiscal indiscipline, warning it could raise India's sovereign borrowing costs. Chief Economic Advisor V Anantha Nageswaran highlighted the risk posed by states' rising revenue deficits and unconditional cash transfers, which threaten growth-enhancing investments.

With Indian government bonds now globally indexed, global investors are increasingly evaluating general-government finances, not just those of the Union government. The report noted that India's current 10-year bond yield is 6.7%, compared to Indonesia's 6.3%, despite both countries having a credit rating of BBB.

Nageswaran also addressed the broader economic climate, citing risks from high inflation and stretched asset valuations linked to ultra-loose monetary policies since 2008. However, he mentioned declining unemployment and rising female labor force participation as positive developments in the economic landscape.

(With inputs from agencies.)