On Friday, Finance Secretary Ajay Seth proposed an idea to rate the state governments’ securities based on their financial actions, driven by an independent system that depends on the market’s demand-supply scenarios to bring fiscal discipline among the states.
The current unfair mechanism that leads to this…
Stressing on the need for ranking the state government’s loans, he mentioned in his statements that “the debt papers of the state governments are treated more or less the same, irrespective of whether the state debt to GDP ratio is 50% or it is 20%,” at Ashoka University’s first Annual Growth Conference 2025 hosted by Issac Centre for Public Policy. Just to simplify this statement take two states for example that have same GDP say Rs 100, one with a debt of Rs 20 and another with a higher debt of Rs 50, making the Debt to GDP ratio of 20% for the first and 50% for the second state, now these both are been treated “more or less the same” as per Seth. This adds up as a difficulty in making decisions for the lenders, and further also acts as a demotivating factor for financially well-performing states.
The Centre is trying to control this, but…
He also mentioned that the central government has taken steps to reduce the uncontrolled borrowings done by the states outside their budget, which was another way of implementing some financial discipline. However, this step has seen some legal challenges from the states.
India’s bids at the World Bank to push for changes in calculating WGI…
At the edge of the event, he also told the World Bank has agreed to make changes in the methods for calculating its governance indicator, listening to the voice of India and some other nations demanding improvements on it.
As of now, the international rating agencies give about 15% weight to governance while assessing their independent ratings, they consider the World Bank’s Worldwide Governance Indicators (WGI). Senior officials from India have excessively highlighted the subjective nature of the WGI and pushed for a more objective-based assessment in this regard.
