For the first time in over a decade, the combined fiscal deficit of 29 states has breached the threshold of 3% recommended by successive finance commissions. The reserve bank of India has admonished the states to revert to 3% limit in 2016-17 fiscal year.
The main reason for this debt is the loss incurred by the Power distribution companies struggling under UDAY restructuring policy. With elusive private investments and tepid economic growth, the task only became harder.
Though 3% is not a magic number, as asserted by experts, yet it is an anchor that abstains fiscal irresponsibility which has been the root cause of the recent financial predicaments. So, states need to restrain from exorbitant spending in order to comply to this limit.