RBI Governor Sanjay Malhotra flags need for 'prudent borrowing' as states face fiscal management challenges

The Reserve Bank of India (RBI) has called on state governments to improve expenditure quality, strengthen cash management and adopt prudent borrowing strategies to ensure long-term fiscal sustainability.

The central bank's Governor, Sanjay Malhotra, made the recommendations while inaugurating the 36th Conference of State Finance Secretaries in Mumbai on Tuesday, according to an RBI release.

The conference was held under the theme 'Role of Quality of Expenditure, Effective Cash and Prudent Debt Management in Enhancing States' Fiscal Sustainability'. It brought together finance secretaries from 27 states and three Union Territories, along with senior officials from the Union finance ministry, the Controller General of Accounts and the Comptroller and Auditor General of India, the RBI said.

According to the central bank, Malhotra stressed the importance of maintaining expenditure quality to safeguard states' long-term fiscal health. He also called for more disciplined borrowing strategies and efficient management of cash balances and liabilities.

RBI urges states to adopt digital financial platforms

The RBI Governor urged state governments to onboard the Unified Lending Interface (ULI) and use programmable central bank digital currency (P-CBDC) for direct benefit transfers (DBT), the central bank said in its release.

He also advised states to make effective use of the State Level Bankers' Committee (SLBC) forum to address banking-related issues and strengthen coordination with financial institutions.

During the conference, Malhotra released the 'Compendium on Cash and Debt Management for State Governments'. According to the RBI, the publication brings together key concepts, operational processes and institutional practices relating to cash and debt management in a concise reference format.

State borrowings, RBI support discussed

The conference also reviewed state governments' overall market borrowings, short-term financial accommodation provided by the RBI and the implementation of the Benchmark Issuance Strategy across states, the central bank said.

The discussions focused on improving fiscal management practices and strengthening the mechanisms through which states manage their borrowing requirements and short-term liquidity needs.