The AG underscored that prudent public finance management is a national priority, with implications for the nation’s competitiveness and sovereign credit ratings.
If a State indulges in reckless borrowing to finance unproductive expenditure or poorly targeted subsidies, it will crowd out private borrowing from the market, he contended.
“Increases in the State’s debt servicing liabilities as a consequence of higher borrowing by it will reduce the availability of funds for development, leading to impoverishment of people and loss of State income, and hence also loss of national income … if public finance is treated as a State-specific and not a national issue, the entire edifice of federal structure in the country would collapse like a pack of cards,” the note said.
The debt levels of State governments affects credit ratings of the country by increasing borrowing costs, which act as markers to qualify and quantify the general investment atmosphere.
“Macroeconomic management and public financial management, both quantitatively and qualitatively, affect the ratings in a big way. Hence for good ratings, it is essential that the general Government debt which includes the debt of State, be managed properly.”
Source: Barandbench
