States' finances improved in FY23, and there is a need to look at asset monetization to help garner non-tax revenues, a Reserve Bank the report said on Monday.

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In the report on state budgets, which is done annually, the Reserve Bank said road, transport and power sectors hold considerable potential where the states can undertake asset sales.

"States need to scale up their initiatives for asset monetization in order to increase non-tax revenue. The monetization of assets unlocks their value, eliminates their holding cost and enables scarce public funds to be deployed into new projects, thus fast-tracking new infrastructure. creation," the report recommended.

States possess a sizeable infrastructure asset base with significant potential in roads, transport and power sectors, which can be looked at, the report said.

It recommended mobilizing revenues by undertaking a comprehensive review of unutilised land assets and converting them into revenue-generating industrial estates or doing an outright sale.

The RBI report also said that in the case of non-operational public sector undertakings (PSUs), states may expedite their liquidation to curb losses.

States can also look at shoring up the non-tax revenues through revising user charges on electricity, water and other public services, royalties and premiums from mining, and better financial management of their PSUs, the report said.

It also pitched for reviewing the current system of grants, pitching for the Finance Commission to consider recommending an increased share of conditional transfers based on reforms, quality of expenditure and fiscal sustainability to harness healthy competition across states towards improving their economic performance.

States' fiscal deficit improved for the second consecutive year in FY23, with the gross fiscal deficit getting contained at 2.8 per cent, the report said, adding that in FY24, it is set to come at 3.1 per cent of GDP.

The analysis showed that states are planning for a near elimination of the revenue deficit while the capital outlay is budgeted to increase by 42.6 per cent in FY24 to 2.9 per cent of GDP.

States' total outstanding liabilities are budgeted to fall to 27.6 per cent of GDP for FY24 from a peak of 31 per cent in FY21, but in the case of many states, the outstanding liabilities may remain higher at over 30 per cent of their gross state domestic products (GSDP).

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