According to the study by Japanese brokerage Nomura, which was based on the 2016-17 Budgets of 16 states, this comes on top the sharp 22 percent rise in borrowings in the previous fiscal despite an increase in central transfers.
"The first step was that in any fiscal management, we have to keep state governments on board... The DEA will be moving a note. We will also be giving our inputs. We will see how the committee if formed... It will eventually go to Cabinet," Finance Secretary Ratan Watal told reporters here.
Referring to the Goods and Services Tax (GST), the report said that despite several reform measures, goods and services continue to be bogged down with several indirect taxes at different stages of the value chain with significant tax cascading.
India's power reforms are likely to put pressure on state governments' budgets, potentially forcing them to cut spending needed to support economic growth, the Reserve Bank of India (RBI) said in a report on Thursday.
The overall revenue deficit during 2014-15 fiscal stood at Rs 24,194 crore including the period from April 1 to June 1, 2014 when the state remained united, the CAG said in an audit report on state finances for the year ended March 31, 2015.
According to the global financial services firm, despite higher transfers from the centre, an analysis of 18 state Budget documents suggests that the state governments on aggregate clocked slightly wider deficits than budgeted at the start of the year.
The amendment is being made as per the flexibility provided by the 14th Finance Commission in its Fiscal Consolidation Roadmap to set the fiscal deficit targets and annual borrowing, Chief Secretary A P Padhi said.
Analysts say Raghuram Rajan, Governor of the Reserve Bank of India, could soften monetary stance after Finance Minister Arun Jaitley stuck to a fiscal deficit target of 3.5 percent of GDP for next fiscal year in his third Budget last month.
Arun Jaitley may be getting pats on the back for sticking to stiff fiscal deficit targets, but former finance minister P Chidambaram is not impressed. It's not just the fiscal math that Chidambaram has a problem with, he says the big rural thrust sketched out in Budget 2016 is full of sound and fury, signifying nothing.
Terming it as unacceptable, he said "instead of the government borrowing, and showing it as part of the fiscal deficit, and giving it to Ministry of Railways and Road Transport as budgetary grant, you (Centre) are asking them to borrow."
In his Budget speech last month, Finance Minister Arun Jaitley had said there is now a school of thought which believes that instead of fixed numbers as fiscal deficit targets, it may be better to have a fiscal deficit range as the target, which would give necessary policy space to the government to deal with ever-changing dynamics.
Significant liberalisation of foreign direct investment (FDI) norms in a host of sectors including insurance, pension, ARCs and stock exchanges in the Union Budget to attract more foreign investment and the government's commitment to its fiscal deficit target also largely weighed on the trade.
The Budget attempts to kickstart the investment cycle through robust public capex spend even as it places equal emphasis on crucial areas such as agriculture & farmer welfare, rural development, healthcare and skill development in an effort to address rural distress after two successive subpar monsoons.
With Finance Minister Arun Jaitley sticking to the fiscal deficit target of 3.5 percent in the Budget for 2016-17, there are rising expectations that the central bank might ease interest rates during its policy meet next month.
The government announced gross market borrowing of 6 trillion rupees (USD 88.65 billion) in its annual Budget for 2016/17, in line with market expectation, while sticking to the overall fiscal deficit target of 3.5 percentage of the gross domestic product.