Role of Public Finance in Bridging Fiscal Deficits and Economic Stability: the case of Chhattisgarh

Chandra Saha Roy

Assistant Professor (Economics) , Kalinga University, Nawa Raipur

Chhattisgarh, one of India’s emerging states, faces unique challenges and opportunities in managing its fiscal deficits and ensuring economic stability. With its relatively recent statehood, having been carved out of Madhya Pradesh in 2000, Chhattisgarh has focused on harnessing its natural resources and improving infrastructure to foster economic development. However, managing fiscal deficits effectively remains crucial for sustaining growth and ensuring stability. Chhattisgarh’s fiscal deficit has been influenced by its development needs and revenue constraints. As a state with significant rural and tribal populations, the demands on public spending are substantial. For the fiscal year 2020-21, Chhattisgarh’s fiscal deficit was approximately 4.55% of GSDP (Gross State Domestic Product). This is relatively high but within permissible limits set by the Fiscal Responsibility and Budget Management (FRBM) Act.

            The state’s fiscal deficit reflects a combination of increased expenditure on welfare programs, infrastructure development, and limited revenue generation capacity. The challenge for Chhattisgarh is to manage this deficit while promoting sustainable economic growth and social development. Effective public finance management in Chhattisgarh involves several key strategies like, Revenue generation in Chhattisgarh primarily comes from state taxes such as VAT, state excise, and stamp duty, as well as central transfers. To enhance revenue, the state has implemented various tax reforms and aimed to improve compliance. The introduction of GST has helped streamline tax administration and widen the tax base. Additionally, Chhattisgarh has explored the potential of natural resources, including minerals and forest products, to boost revenue. Ensuring efficient management and fair extraction practices in these sectors can contribute significantly to the state’s fiscal health. Chhattisgarh has focused on improving infrastructure, including roads, bridges, and rural connectivity, which is vital for economic development. Significant investments have also been made in health, education, and social welfare programs. However, balancing these investments with fiscal prudence is essential to avoid exacerbating the deficit. The state adheres to the FRBM Act, which mandates limits on fiscal deficits and public debt. Efforts to rationalize subsidies and enhance the efficiency of public spending are ongoing to ensure that resources are used effectively and contribute to long-term economic stability. Chhattisgarh’s public debt management involves maintaining a sustainable level of debt while financing development projects. As of the latest estimates, the state’s Outstanding liabilities-to-GSDP ratio is approximately 28.76% in 2020-21. Effective debt management practices include careful planning of borrowings and ensuring that debt servicing costs do not undermine fiscal stability. The state government has focused on securing concessional loans from central government schemes and financial institutions, which helps in managing debt more effectively and supporting development initiatives without significantly increasing the fiscal burden.

The Role of Public Finance in Economic Stability

Investment in infrastructure and social services has a direct impact on economic growth. Chhattisgarh’s focus on developing rural infrastructure, improving connectivity, and investing in human capital contributes to higher productivity and economic expansion. These investments, while contributing to short-term deficits, are expected to yield long-term benefits by boosting economic activity and improving the revenue base.            Proper fiscal management helps control inflation by avoiding excessive borrowing and ensuring that spending is aligned with revenue. Chhattisgarh’s adherence to fiscal discipline helps in maintaining stable prices and creating a conducive environment for investment and growth. Public finance plays a crucial role in Chhattisgarh’s social welfare programs, such as the Rajiv Gandhi Grameen Bhumihin Adhikar Patta Yojana and various health and education schemes. Effective targeting and implementation of these programs help in reducing poverty and inequality, contributing to overall economic stability.

            Bridging fiscal deficits in Chhattisgarh requires a multifaceted approach to public finance management. By focusing on improving revenue generation, managing expenditures prudently, and ensuring effective debt management, Chhattisgarh can work towards achieving economic stability and sustainable development. The state’s commitment to fiscal discipline, coupled with strategic investments in growth-enhancing sectors, will be key to navigating fiscal challenges and fostering long-term economic stability.