New Delhi, Oct. 3 -- This year, there has been a lot of focus on government fiscal slippage risk with cuts in income tax and, more recently, GST. The headlines tend to focus on the Central government's fiscal policy, while much less focus is given to state fiscal policy. There are two reasons for this: firstly, it's very difficult to track state fiscal data, and second, historically, states have been much more fiscally prudent.

That said, state fiscal policy is equally important as the Centre, with states' capital expenditure almost at par. The fiscal prudence which marked state governments in the past has been weakening with a gradual pick-up in fiscal deficit over the last few years. State fiscal deficit has risen from 2.7% of GSDP* in...