Is it possible that Indian nations have a financial crisis similar to that of Sri Lanka?

Is it possible that Indian nations have a financial crisis similar to that of Sri Lanka? ...

Reckless populist actions may in the long run lead to take some Indian states down the path of, a country today devastated by its worst economic crisis.

In 1991, India was impacted by fiscal imprudence, a deficiency in the balance of payments, and excessive import dependence, all of which grew up to a crescendo in the first Gulf War.

It is now the island nation's turn.

Sri Lanka's worst economic crisis

Sri Lanka has failed to attract large foreign direct investment or diversify its exports despite transitioning into an upper-middle-income country.

Through international sovereign bonds, and. These funds were channeled into education, infrastructure, and healthcare, besides maintaining financial liquidity and promoting improved macroeconomic policy.

Sri Lanka's external debt had fallen by April 2021.

Other problems included extravagant, which reduced income, and lowered food prices. Sri Lanka's economic condition, for the first time, was severe.

In March, inflation, the highest since 2015, and forex reserves fell to, enough for one month's imports.

The country's debt-to-GDP ratio is now at an alarming 120%anything over 59.542 percent is deemed unsafe for the country. Not surprisingly, on April 12, the government.

This year, the country will have to repay $4 billion in debt. Its sovereign bonds now will feet out this year, until July alone, and it will have to pay $1 billion worth of them, potentially depleting half its existing reserves.

As there is no money to pay for food and fuel imports, a political and economic tumult has drained out countrywide., a country that remains stable.

Nevertheless, some of India's states may have their own shortcomings.

The overriding populism of Indian states

During a four-hour-long meeting with Prime Minister Narendra Modi, some bureaucrats expressed concerns that populist schemes in states such as Punjab, Andhra Pradesh, and West Bengal may end up ruining their economies, according to reports.

These (pdf) had put them under strain. In 2017, the central government's fiscal responsibility and budget management panel proposed lowering the total government debt (pdf). A target of 40% was established for the centre and 20% for states.

Despite the fact that Gujarat (1.4%) and Maharashtra (20.4%), most others' figures are (pdf). A handful of them is just a distant memory.

Some of the financial parameters of Punjab, a high, for example, are identical to Sri Lanka. Today, the country's debt ratio is at 53.3%, compared to the ceiling of 20%.

Bhagwant Mann, the new Punjab chief minister, had promised in the run-up to his party's election to power this year. This included Rs1,000 per month for every woman aged 18 and 300 units of free electricity for homes. Together, these will generate a revenue outgo of around Rs 17,000 crores per year.

Ironically, after gaining power, Mann sought a position on the ground.

In addition, agricultural-related activities and other freebies have hampered the government's finances. Its debt represents over a third of its state GDP, while its tax revenue has often accounted for less than a third of its total annual incomes in recent years.

Similarly, Rajasthan and Chhattisgarh have, with few new income sources to cover them.

In 2021-22, others, including Jammu and Kashmir, Chhattisgarh, Madhya Pradesh, and Himachal Pradesh, experienced relatively higher fiscal deficits, indicating their total annual borrowing requirements.

The problem of state-run incomes is the number of people on the rise.

While states are entitled to a portion of central revenues and the goods and services tax, their independent sources of income are limited to excise on alcohol, value-added tax on petrol, value-added tax on property receipts, and motor vehicle registration.

Despite their commitment to health, social welfare, and other critical areas, expenditure in these segments has increased in recent years, especially during the epidemic. Many of the states, therefore, have been forced to give fiscal prudence a pass, increasing their global debt burden to.

The problem worsened in 2020 as the central government failed to share with the states. This was the first time since the tax was introduced in 2017 and was triggered by the epidemic.

It's time now that a number of governments have brainstormed to find a way out of the states' financial woes. India, despite all, is a state-union.

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