The RBI has advised states to create a capital expenditure buffer fund for better days.

The Reserve Bank of India (RBI) on Monday said that the Gross Fiscal Deficit (GFD) of the states is likely to come down to 3.4 per cent of the Gross Domestic Product (GDP) in the current financial year, while the pandemic-hit year 2020-21 In 2015 it was 4.1 percent of GDP.

Apart from presenting this assessment of the improvement in the fiscal position of the states, the RBI in one of its reports said that the states should continue to focus on creating a congenial environment for extensive private investment.

In its report titled 'State Finances: A Study of Budgets for 2022-23', the central bank has said that the fiscal position of the states has improved as compared to the pandemic period.

Broad-based economic revival and the increase in revenue collection have played an important role behind this.

According to the report, increasing budget allocation for health, education, infrastructure and green energy transition from the states can help in the expansion of productive work in the coming times.

However, for this it is necessary that the states keep capital planning in the mainstream.

The RBI has advised states to create a capital expenditure buffer fund in better days, so that the quality of capital expenditure can be maintained even throughout the economic cycle.

Apart from this, in order to attract private investment, the state governments have also been suggested to focus on creating a congenial environment for the private sector.

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