UP Recognized as One of the Best Managed States Financially Despite Low Per Capita Income
Uttar Pradesh, despite ranking second-lowest in per capita income among Indian states, has been recognized as one of the best-managed states financially. Arvind Panagariya, Chairman of the 16th Finance Commission, made this assertion during a press conference in Lucknow. He highlighted the state’s impressive tax collection and fiscal discipline, which he believes could serve as a model for other states facing revenue challenges.
Uttar Pradesh’s Financial Management Praised
During his visit to Uttar Pradesh, Arvind Panagariya commended the state for its effective financial management. He noted that the state’s tax collection as a percentage of its Gross State Domestic Product (GSDP) is among the highest in India. This achievement is particularly significant given Uttar Pradesh’s low per capita income. Panagariya emphasized that if other states could replicate Uttar Pradesh’s tax collection efficiency, it would greatly alleviate their revenue issues. His remarks came after discussions with Chief Minister Yogi Adityanath and other senior officials, where he was briefed on the state’s economic reforms and fiscal performance.
Panagariya pointed out that Uttar Pradesh’s expenditures are well-planned and remain within budgetary limits. He stated that the state’s fiscal deficits are also maintained within acceptable norms, showcasing a disciplined approach to financial management. This financial prudence is crucial for sustainable development and economic stability.
Fiscal Advantages and Revenue Generation
Uttar Pradesh benefits from two significant fiscal advantages that contribute to its financial health. First, the state has strong own-tax revenue collections, including State Goods and Services Tax (SGST) and excise duties. Second, the Finance Commission’s horizontal devolution formula tends to favor states with lower per capita incomes, which works to Uttar Pradesh’s advantage. Panagariya explained that this dual benefit positions the state favorably in terms of financial resources.
He further elaborated that the state’s debt-to-GDP ratio remains manageable, allowing for increased development spending rather than excessive debt servicing. This financial flexibility is essential for fostering growth and improving public services. Panagariya’s insights underscore the importance of sound fiscal policies in achieving economic progress.
Concerns About Public Debt
While acknowledging Uttar Pradesh’s financial achievements, Panagariya also issued a caution regarding the implications of high public debt. He noted that while current administrations may not face immediate repercussions from accumulating debt, future governments could bear the burden of these liabilities. This perspective highlights the need for responsible fiscal management to ensure long-term sustainability.
Panagariya’s comments serve as a reminder that prudent financial practices are essential for maintaining economic stability. He emphasized that the state must continue to manage its finances wisely to avoid creating future challenges for subsequent administrations.
Future Recommendations from the Finance Commission
During the press conference, Panagariya reiterated that Uttar Pradesh, along with over 22 other states, has requested an increase in its share of tax revenue from the current 41% to 50%. The state is also seeking special funds for targeted development initiatives. The 16th Finance Commission, established on December 31, 2023, is tasked with recommending the distribution of tax revenues between the central government and the states for the five-year period starting April 1, 2026. The Commission is expected to submit its report by October 31, 2025, with recommendations that will influence fiscal policies from 2026-27 to 2030-31.
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