State governments walk fiscal tightrope on social and economic spending

Most State government expenditure is on social sectors, such as health and education, and economic sectors, such as agriculture and irrigation. In Kerala, such spending has driven social progress since the 1960s. The gap between expenditure and receipts is usually financed through market borrowings.

Source

The Hindu — Business →

Quick Revision

Prelims-testable facts

01Most State government expenditure in India is on social sectors, such as health and education, and economic sectors, such as agriculture and irrigation.
02The gap between State government expenditure and receipts is usually financed through market borrowings.
03State governments in India have limited revenue powers, with taxation powers largely resting with the Union government.
04Many Indian States are facing growing fiscal stress despite achieving significant social and economic progress.
05State governments in India carry a larger share of welfare spending compared to the Union government.
06The fiscal structure in India currently does not allow State governments to access domestic savings easily and cheaply for planned development projects.

Trap alerts

Most people think that State governments have significant taxation powers, but actually, taxation powers largely rest with the Union government.
Most people think that State governments can easily access domestic savings for planned development projects, but actually, the fiscal structure in India currently does not allow this.

Prelims Practice MCQs

Single facteasy

What is the primary source of financing for the gap between expenditure and receipts for most State governments?

A.Market borrowings
B.Central government grants
C.State taxes and revenue
D.External debt

Market borrowings finance the gap between expenditure and receipts for most State governments, allowing them to meet their fiscal obligations.

Multiple statementsmedium

Consider the following statements regarding State Government Expenditure: 1. Most State governments finance the gap between expenditure and receipts through market borrowings. 2. State governments spend more on social sectors than on economic sectors. 3. Kerala has been able to reduce its market borrowings in recent years due to increased revenue from agriculture. How many of the above statements are correct?

A.Only one
B.Only two
C.All three
D.None

Statement 1 is true because provision 6 states that State governments finance the gap between expenditure and receipts through market borrowings. Statement 2 is true because most State government expenditure is on social sectors (fact 5 and 8). Statement 3 is false because fact 9 states that Kerala has a gap between expenditure and receipts that is usually financed through market borrowings, but does not mention any reduction in recent years.

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