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MOSL: ECONOMY-Is fiscal policy reaching limits? From our combined study of central and state budgets, it appears so

​Economy: Is fiscal policy reaching limits? From our combined study of central and state budgets, it appears so

• Though every minute detail of the union budget is examined closely, state budgets do not receive their due share of attention. Together, state budgets constitute ~150% of the union budget and the states' market borrowings are expected to increase from less than 50% of the center's in FY16 to 75% in FY18. To better grasp fiscal policy implications, a detailed analysis of the combined budgets of both the center and the states is essential. Through this report, we also intend to address the lack of contemporary studies on state budgets. Our key findings:
  
• Over the past few years, states' tax receipts have weakened sizably, increasing their reliance on the center. The combined tax-to-GDP ratio budgeted for 2017-18 is still meaningfully lower than the peak seen over a decade ago. Not surprisingly then, the states have budgeted 13-year lowest growth in their total spending, in line with the 12-year lowest growth budgeted by the center.
  
• Not only the center, but the states too are focused on investments. Consequently, the states have budgeted for 15-year lowest growth in consumption spending. As per the second advance estimates, government consumption spending is estimated to have grown 17% in FY17 and contributed one-fourth to real GDP growth of 7.1%.