State governments are entitled to take such decisions but manage their financial consequences. However the recent report of the Reserve Bank, State Finances: A Study of Budgets 2016-17, has some worrying conclusions. Given the increased foreign holdings of Indian government bonds, a worsening of State finances will dent India’s credibility among foreign institutional investors (FIIs). State governments must be encouraged to adopt a similar practice by securing the approval of the State Legislature. The management of State finances must not undercut this important achievement which is central to investor confidence and enhanced credit rating.

Source: The Hindu June 16, 2017 18:33 UTC