UP among best fiscally managed states despite low per capita income: Finance Commission chief

Finance Commission chief Arvind Panagariya & UP cm Yogi Adityanath (PTI)

Uttar Pradesh, despite having the second-lowest per capita income in the country, has emerged as one of the best-managed states financially, Chairman of the 16th Finance Commission Arvind Panagariya said on Wednesday.Speaking at a press conference at Lok Bhawan during the Commission’s visit to the state capital, Panagariya said the panel was briefed on UP’s economic reforms, demographic shifts, fiscal performance, and development achievements, as reported PTI.“All in all, Uttar Pradesh is a well-run state. Its tax collection as a proportion of GSDP is among the highest in the country,” he said, following meetings with Chief Minister Yogi Adityanath, Chief Secretary Manoj Kumar Singh, and senior state officials.“Indeed, one would like to see other states be able to do the tax collection as the proportional GSDP to the tune of what UP can do, which will go a long way towards solving the revenue problems of the other states as well,” Panagariya added.He praised the state’s financial discipline, stating that its expenditures are well-planned and within budget limits, while fiscal deficits are also maintained within the prescribed norms.“Its expenditures are also well designed and well within its budgets,” he noted. “Its fiscal deficits are well within the usual limits.”According to Panagariya, Uttar Pradesh benefits from two major fiscal advantages – strong own-tax revenue collections and favourable treatment under the Finance Commission’s horizontal devolution formula, which tends to favour states with lower per capita income.“On finances, UP has a double advantage. One, its own tax collections (SGST, excise, etc) are good. The second is, finance commissions are traditionally also, in horizontal devolution, give more weight to poorer states which have lower per capita income. UP has the second-lowest per capita income after Bihar, which has the lowest. That also works to UP’s advantage,” he explained.Acknowledging the state’s prudent financial strategy, he said, “Good finances can also be squandered, but that’s not the case with UP. It has prudently managed its finances.”He added that the state’s debt-to-GDP ratio remains well within manageable levels, enabling more room for development spending rather than debt servicing.“Its debt-to-GDP ratio is also very much within manageable levels. That, of course, makes its finances a little more comfortable because if you have very large debt, then a substantial part of your expenditures ends up being devoted to the interest payment of that debt,” he said.Panagariya also issued a caution regarding high public debt, noting that while current governments may not face immediate consequences, the burden often falls on future administrations.“If you have very high debt, then the government which runs that high debt may not suffer, but future governments end up suffering when you end up creating liabilities for the future,” he said.During the press interaction, he reiterated that Uttar Pradesh, like more than 22 other states, has called for an increase in the states’ share of tax revenue from the current 41 per cent to 50 per cent. The state has also sought special funds for targeted development initiatives.The 16th Finance Commission, constituted on December 31, 2023, under Article 280 of the Constitution, is tasked with recommending the distribution of tax revenues between the Centre and the states for the five-year period beginning April 1, 2026. The Commission is scheduled to submit its report by October 31, 2025, with its recommendations applicable from 2026-27 to 2030-31.