Financial Planning: To strengthen the economic condition of any state, good tax collection is necessary, but sometimes even after earning good income from tax, the economic condition of the states does not become that strong and the reason for this is excessive spending. Merely increasing the income does not strengthen the economic situation, unless the continuous expenses are kept under control. In view of this, the 16th Finance Commission has given an important suggestion to strengthen the economic condition of the states.

In fact, the Commission believes that in some states the income is not increasing as fast as the expenditure is increasing. Therefore, the states will have to try to increase their earnings and along with increasing the earnings, they will also have to reduce their non-essential expenses, so that the economic condition of the state remains better.

Haryana is number 1 in the country in tax collection, Bihar is the worst, report reveals the self-reliance of the states.

Do not take loan beyond your budget

Apart from this, the Commission says that the state should not take more loan than the budget, doing so should be avoided. Even if for some reason a loan has to be taken, all the information related to it will be kept before the people in the budget every year.

Will revenue deficit grant be given or not?

According to the report, this time it has not been recommended to give Revenue Deficit Grant to any state. Not only this, but no separate proposal has been made to provide any special financial assistance to any state or region. Along with this, the Commission has advised that states should spend only according to their earnings. This is why the Commission said that the fiscal deficit of any state should be kept within 3 percent of its total economic capacity and should not be more than this.

People of Sikkim are the richest, Bihar is still the poorest, which states won in per capita income?

Commission gave advice to the states

• The Commission says that now states should increase their tax earnings.
• Also spend only as per need. If there is no need then control unnecessary expenses.
• This will make the state economically stronger.

What effect will this have on people?

This will also affect people like…

• If the state becomes economically strong then better facilities will reach the people.
• With the strengthening of the economic situation, more money can be spent on facilities like roads, schools and hospitals than before.
• The state will not have to take any kind of loan.
• A good amount of money will be available for important development schemes.
• In future, this money can help in government works.

One morning it is printed on the front page of the newspaper – ‘Wholesale inflation rate reached a record 8.30 percent.’ There is another news on the other page of the same newspaper – ‘RBI has indicated to increase the repo rate in the coming months.’ Then in the evening, when you go to the petrol pump, you come to know that diesel and CNG are also going to be costlier by Rs 4-5. You may think that these are all separate problems, but in reality all three are three links of the same very dangerous chain, which economists call ‘the vicious circle of inflation’. This is a trap that starts with the war in West Asia and the impact of El Nino, but how?

First spark: Petrol-Diesel-CNG fire and El Nino’s impact

This vicious cycle of inflation starts with two big shocks:

1. Uncontrollable rise in fuel prices

At present, the prices of petrol and diesel are skyrocketing all over the world. The biggest reason for this is the increasing tension and war situation in the Middle East. This crisis has severely affected the oil supply through the ‘Strait of Hormuz’, through which about 20 percent of the world’s oil passes. The result was that the prices of crude oil jumped from $ 70 per barrel to around $ 126 per barrel.

This had a direct impact on the wholesale market of India. The country’s wholesale inflation rate (WPI) jumped to 8.30% in April 2026, which is the highest level in the last three and a half years (42 months). In March 2026, this rate was only 3.88%, i.e. a jump of more than double in just one month.

The ‘Fuel and Electricity’ sector had the biggest role in this entire increase, whose inflation rate directly reached 24.71%, whereas in March it was only 1.05%. The wholesale inflation rate of crude oil alone reached 88.06% and that of petrol reached 32.40%. According to Madan Sabnavis, Chief Economist of Bank of Baroda, ‘There is no sign of the war stopping, due to which oil prices will remain in the range of $ 100-120 per barrel and WPI inflation will remain high.’ Rating agency ICRA even said that wholesale inflation may increase further in May.

2. Dangerous shadow of El Nino

On top of that, the Meteorological Department (IMD) has predicted the south-west monsoon of 2026 to be below normal (only 92% of the long period average). The biggest reason for this is ‘Super El Nino’. This is a seasonal phenomenon in which the surface temperature of the Pacific Ocean increases by 2 degrees Celsius or more than normal, which weakens the monsoon winds and reduces rainfall. There is a 61% probability of it becoming active between May and July 2026.

This simply means – crop production will decrease. Especially major crops like paddy, soybean and cotton will be affected, due to which food inflation will increase.

Second shock: The burden from companies reaches you

These increased costs do not reach you directly, but through a chain:

1. Wholesalers and Companies

WPI figures show that not only fuel but also the manufacturing sector has been affected. The inflation rate of manufactured products increased from 3.39% in March to 4.62% in April, which is the highest level in 43 months. Prices increased in April in 21 out of 22 manufacturing groups tracked under WPI. Inflation of primary articles (raw materials) also increased from 6.36% to 9.17%.

2. Customer means burden on you

When crude oil itself becomes 88% expensive, the cost of petrol and diesel manufacturing companies will also increase by the same amount. RBI Governor Sanjay Malhotra has clearly said, ‘Oil companies cannot bear these losses for long.’ Oil companies are incurring losses of around Rs 30,000 crore every month. Experts estimate that after May 15, 2026, the prices of petrol and diesel may increase by Rs 4 to 5 per liter.

As the prices of petrol and diesel increase, transportation becomes expensive. Be it vegetables, milk or any other item. Everyone’s transportation costs increase. According to an estimate, if diesel becomes costlier by just Rs 5 per litre, the cost of freight increases by 3%.

Last blow: RBI’s helplessness and rising EMI

From here begins the real ‘vicious cycle’, which breaks the back of the common man:

1. RBI’s challenge and your EMI

RBI’s job is to keep inflation under control. Currently the repo rate is stable at 5.25%, but RBI has estimated retail inflation (CPI) at 4.6% for the financial year 2026-27. It is expected to reach 5.2% in the third quarter (Q3). Now the pressure has increased further after WPI reached 8.30%. The Chief Economist of Bank of Baroda has warned that after some time, WPI inflation also gets transformed into CPI i.e. retail inflation through higher input costs.

2. Direct effect of increase in repo rate

Repo rate is the rate at which RBI gives loans to banks. When RBI increases this rate, money becomes expensive for banks and banks pass this burden on you. The result of this is that the amount of your home loan, car loan or any kind of EMI increases. Experts believe that if inflation comes under control, then relief in EMI can be available only at the end of 2026 or beginning of 2027. RBI has currently adopted the strategy of ‘wait and see’, but the fear of further rise in inflation due to increasing tension in the Strait of Hormuz has made the situation more difficult.

After all, why is this a ‘vicious cycle’ of inflation?

This entire process works like a web and every link is interconnected:

• External shock: In West Asia, due to reasons like tension and El Nino, fuel and food items become expensive. WPI at 8.30% and fuel and power inflation at 24.71%.
• Transfer of Cost: Costs of companies and wholesalers increase (manufactured products inflation 4.62%), the burden of which they pass on to customers. Since May 15, petrol and diesel prices have increased by Rs 2-3 per litre.
• RBI action: To stop rising inflation (CPI estimated at 4.6%, up to 5.2% in Q3), RBI may be forced to increase the repo rate.
• Double blow to the common man: The result is that on one hand the expenses of your daily life increase (from petrol to vegetables). On the other hand, there is a danger of the EMI amount being paid by you also increasing.

This is called the ‘vicious cycle of inflation’, where one problem gives rise to another and ultimately the entire burden falls on the common man’s pocket. At present, the government and oil companies are trying to prevent this burden from passing on to you, but as the RBI Governor clearly said, the increase in prices is now ‘just a matter of time’.