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The recent turmoil in the Sri Lankan economy has raised an alarm for various Indian states which are suffering from pathetic financial health. The continuous burden of interest payment of the debt has taken the entire economy into the grip. If we examine the budgetary events of Sri Lanka, the situation was not so pitiable some years ago. The current economic debacle is so horrible that states do not have foreign exchange to repay the interest amount of external debt. This arena of crisis emerged due to poor debt management programs and a series of inefficient economic policies. Experts unanimously reach in conclusion on the background of the present crisis, the foulest in several decades. The continuous surge in twin deficits and overlooking it, instigated the current crisis decades ago. On the other hand, there are other factors which are equally responsible for the current economic crisis. In the 2019 general election, Rajapaksa promised to reduce tax rate to gain the public sentiment of his government as a welfare state, which really vanished the Sri Lankan economy from the budgetary front. Additionally, the emergence of Covid-19 in the month of February ruined the entire tourism sector for almost 1.5 years, which created further problems in two ways. Fall in the tourism sector negatively impacted the foreign exchange reserve of the state. On the other hand, it also led to massive unemployment in the economy, which further created a budgetary burden for the state. Credit rating agencies moved to downgrade Sri Lanka and effectively locked it out of international capital markets, which restricted the Sri Lankan economy to access the international financial market for debt management programs. This further ruined and foreign exchange reserves plunged significantly around 70 percent in two years. On the other hand, immature economic policy by the Rajapaksa government hit the agriculture sector. The sudden ban of chemical fertilisers in 2021 for agricultural purposes badly hit the state's agriculture sector. Consequently, the production of rice crops plunged significantly, which further created the burden of importing rice from foreign countries. The immediate implementation of organic farming across the nation backfired to the economy. Due to these sequences of events, in March 2022, the country was left with only $1.93 billion in its reserves, however, there is a massive debt repayments obligation which is somehow $4 billion in 2022. Out of these debt repayment, $1 billion is required in July 2022 to meet the payment of international sovereign bond (ISB). Sri Lankan economy only relied on foreign debt to meet its foreign exchange needs which continuously created a debt trap and at the end of 2021 the country fell into the grip of the debt trap.
The current situation of economic turmoil in Sri Lanka may also emerge to some of the Indian territory. Current events in our neighbouring nation give us a lesson for us to be cautious on the economic front, our budgetary authority must take it seriously to improve the financial health of the state. Indian states such as Andhra Pradesh, Punjab, Tamil Nadu, West Bengal are slowly moving towards the same budgetary crisis which is prevailing in Sri Lanka. The latest annual report of RBI documents that budget estimates of total interest payment of Andhra Pradesh (22526 crore), Karnataka (29160 crore) Kerala (21940.19 crore) Maharashtra (42997.62 crore) Punjab (21240.52 crore) Rajasthan (28360.37 crore) Tamil Nadu (44700 crore) Uttar Pradesh (45529. 80 crore) and West Bengal (32857.81 crore). On the other hand, another report of RBI on total outstanding liabilities as percentage of gross state domestic product dated 30th November 2021 reveals that states such as Arunachal Pradesh is top as total outstanding liabilities as percentage of GSDP with 57.4 %. While Jammu and Kashmir (56.6%), Punjab (53.3%), Nagaland (44.2%), Himachal Pradesh (43.4%), Rajasthan (39.8%), Meghalaya (39.2%), West Bengal (38.8%), Kerala (38.3%) and Andhra Pradesh (37.6%). We cannot overlook the current situation and move forward, as the Sri Lankan government did. There is a need to introspect in terms of government revenue generation and budget allocation. Now the time has come to contemplate some concrete action to combat the continuous surge of debt GSDP at all India level to prevent any possible economic crisis in future. It is not a strenuous task to handle the current budgetary issue of the states, it can be done with continuous effort and sensible economic policy. The most important concern which every state authority needs to think about is non utilisation of the state budget for improving their hold in the election process. This trend could sink our economy and vanish our effort of making India a 5 trillion economy.
