Power reforms are likely to put pressure on state governments' budgets, potentially forcing them to cut spending needed to support economic growth, the Reserve Bank of India said in a report on Thursday.
States could find themselves deviating from the path of fiscal consolidation as they take on an additional interest burden from debt tied to state utilities.
Ujwal Discom Assurance Yojana (UDAY) announced in November provides for states participating in the programme to convert up to 75 per cent of the 4.3-trillion-rupee ($64.6-billion) loans and debt held by their utilities into bonds, and assume all interest payments and redemptions.
Such a process "would considerably reduce the fiscal space of states, which might lead to curtailment of capital expenditure with an adverse impact on growth," the RBI said in its report on state finance.
So far 15 of 29 states have joined government's UDAY plan.
The RBI urged states to cut "unproductive" expenditure and boost non-tax revenues to improve the quality of fiscal consolidation.
The state government cash surplus stood at 1.88 trillion rupees by the end of March, the central bank said.
Source: The Economic Times
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