SBI warns against freebies; Says they have huge fiscal costs

State Bank of India has warned against freebies, saying they have large fiscal costs and cause inefficiencies by distorting prices and misallocating resources.

Citing an example of just three states, SBI's chief economic adviser Soumya Kanti Ghosh said the annual pension liabilities of Chhattisgarh, Jharkhand, and Rajasthan are estimated at 3 lakh crore rupees. In its economic report, SBI suggested that the Supreme Court-led panel cap such welfare schemes at 1 percent of the state's GDP or 1 percent of its own tax collection.

The report said, in relation to these states' own tax revenues, pension liabilities of Jharkhand are 217 percent, Rajasthan 190 percent, and Chhattisgarh 207 percent. The SBI report also flagged the off-budget borrowings of states, which are loans raised by state-owned entities and guaranteed by the states, to have reached around 4.5 percent of GDP in 2022.

The report further said if we include the contingent liabilities along with freebies, then they come to around 10 percent of the GSDP for all the states combined. We must find a solution to this all-encompassing problem of fiscal hara-kiri, the report added. (AIR NEWS)

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