States' Fiscal Indiscipline Threatens Sovereign Borrowing Costs: CEA Warns

• The Economic Survey warned that states' fiscal indiscipline, driven by populist handouts, will negatively impact sovereign borrowing costs.
• Chief Economic Advisor V Anantha Nageswaran emphasized that short-term income support should not undermine productivity-enhancing investments.
• Rising revenue deficits and unconditional cash transfers in states pose risks by crowding out growth-enhancing spending, despite central consolidation.
• Weak fiscal discipline at the state level increasingly affects India's sovereign borrowing costs, as global investors assess general-government finances.
• Nageswaran also highlighted the end of the easy money era, leading to high inflation and stretched asset valuations, and noted India's declining unemployment rate and increased female labor force participation.

Why It Matters: States' fiscal indiscipline and populist spending are increasing India's sovereign borrowing costs, warns CEA.