A Rs 2.3 lakh crore spend plan to arrest state’s slow growth

The local body tax (LBT) will go as promised by the BJP in the run-up to the state polls.

Written by Sandeep A Ashar | Mumbai | Updated: March 19, 2015 3:27 am
The local body tax (LBT) will go as promised by the BJP in the run-up to the state polls. The local body tax (LBT) will go as promised by the BJP in the run-up to the state polls.

The Bharatiya Janata Party-led government in Maharashtra will boost public spending on roads, infrastructure and irrigation in 2015-16 with a 15 per cent increase in allocation for capital expenditure, as part of a broader plan to revive growth and create more jobs and an added focus on the crisis-hit farm sector.

With the growth rate of Maharashtra, which contributes over 16 per cent to the country’s GDP, slipping to 5.7 per cent in 2014-15, and with projections of a double digit ‘negative growth’ in the farm sector, the government has decided to ratchet up capital expenditure or spending on projects that will lead to creation of assets.

As expected, the budget presented Wednesday by Finance Minister Sudhir Mungantiwar went easy on taxes with the planned higher spending to be financed by non-tax revenues and unconventional sources of revenue in the form of monetisation of land and floor space index (FSI), especially in urban centres such as Mumbai and Pune.

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The local body tax (LBT) will go as promised by the BJP in the run-up to the state polls. However, there was no mention of doing away with road toll tax.

The budget also mirrors Prime Minister Narendra Modi’s pet initiatives such as Skill India, Make in India, Digital India and Housing for All in Maharashtra with the state setting aside sizeable allocations for these initiatives.

On the lines of Skill India initiative, Mungantiwar announced a new Pramod Mahajan Skill Development Programme, under which over 5 lakh youth would be trained each year in areas of work or interest with plans for a skill development centre in every district. Maharashtra has also replicated the Centre’s MP village adoption scheme by announcing a similar programme for its MLAs.

But one of the big disappointments in the budget could be the state government’s inability to address the issue of untargeted and open-ended subsidies.

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While the finance minister spoke about leveraging the “JAM trinity” — Jan Dhan, Aadhaar and mobile numbers — to replace subsidies with direct benefit transfers, his budget offered little by way of a concrete action plan in this regard, which in a way reflects the Union Budget that was unveiled over three weeks ago. Mungantiwar’s speech did not even mention the government’s plan to cut subsidies that touched a record high of Rs 15,183 crore this fiscal.

To kick start growth given the general slowdown in the economy over the last two years, which has impacted Maharashtra — one of India’s economic powerhouses — the government has earmarked Rs 28,074 crore for capital expenditure compared to Rs 24,398 crore estimated to be spent this year.

Total expenditure for 2015-16 will be Rs 2.3 lakh crore, with the first budget of the Devendra Fadnavis government projecting a decline in two key fiscal indicators — revenue and fiscal deficit — though the state’s overall debt stock will rise.

The state’s own tax revenue estimates are lower by 53.73 per cent because of the slowdown and lower realisations from petroleum products this fiscal because of the fall in crude price. Mungantiwar spelt out plans to increase FSI and levy premium for FSI at prevalent market rates, The government estimates that it would be able to mop up Rs 6,068 crore compared to Rs 1,609 crore in 2014-15 — a staggering 233 per cent jump.

Increase in rents for properties leased by the government is estimated to contribute another Rs 3,200 crore. Anticipating “normal growth” in the real estate sector, Mungantiwar has also projected a 108 per cent jump in stamp and registration fees.

An over 60 per cent rise in income from corporation tax and taxes on income has been projected in terms of central devolution. Following the 14th Finance Commission recommendations, the state has anticipated Central grant-in-aid to drop from Rs 30,659 crore to Rs 17,869 crore.

Politically, for the BJP, the budget made the right noises. On top of the government’s priorities is reversing the deceleration in the farm sector and addressing the challenge of a strain on rural incomes and jobs, given the number of people the sector still employs, though Maharashtra has been urbanising rapidly.

Appealing to distressed farmers to “have faith in the government and not take the drastic step of taking their own lives”, Mungantiwar promised that there won’t be any cut in outlays provided. Allocations were also enhanced for schemes related to minority and backward classes that have upped the ante against the Fadnavis government.

Mungantiwar said over the next five years, his government would allocate maximum funds to achieve goals of “stabilising and making dry land agriculture, rapid growth of basic infrastructure to meet challenges of urbanization, and increase job opportunities for the youth”. His growth story, however, will be put to test with Maharashtra’s fiscal policy strategy statement projecting a “higher growth in expenditure on salaries as compared to revenue that would put further stress on the revenue balance”.

Revenue expenditure, which shot up alarmingly over the budget estimates for 2014-15, is expected to grow at just under 4 per cent. It is pegged at Rs 2.02 lakh crore. The total plan expenditure, which is the productive component of the budget, is estimated at Rs 71,637.28 crore — a 16 per cent growth over current year’s revised estimates. The state’s own plan size has gone up from Rs 51,223 crore in 2014-15 to Rs 54,999 crore in 2015-16.

Mungantiwar, who spoke for nearly two hours, said all the right things about “taking strong measures to bring the revenue balance of the state exchequer back on track”. He has projected the revenue deficit, which is estimated to reach Rs 13,383 crore in the current fiscal, to decline to Rs 3,757 crore by March 2016. The fiscal deficit is also expected to decline from Rs 37,246 crore in 2014-15 to Rs 30,733 crore in 2015-16, with a promise of savings by reducing wasteful expenditure and effective revenue recoveries.

The additional spending is estimated to raise the state’s overall debt stock up from Rs 3.02 lakh crore in 2014-15 to Rs 3.33 lakh crore in 2015-16. The budget document, however, pointed out that debt as a percentage of the gross state domestic product (GSDP) would be 17.6 next year, which is well within within the Financial Responsibility and Budgetary Management (FRBM) norms.

In 2015-16, expenditure on salaries, pension, and interest payment is estimated to account for 61.05 per cent of total expenditure, which is a near 2 per cent increase over the revised estimates for 2014-15.

Blaming revenue imbalance during the Congress-NCP regime for the delicate fiscal position, Mungantiwar announced plans to set up a separate control room in Mantralaya to monitor expenditure on works through “Evidence-based photography”. His budget was laced with poetic verses, quotations and jibes at the Opposition. Mungantiwar, however, reached out to Opposition members urging them to “participate in development”.

At a time when ties between BJP and ally Shiv Sena appear strained, the budget attempted to bridge the divide, with Mungantiwar invoking Shiv Sena supremo (late) Bal Thackeray. He announced a chair in the name of the late leader in Mumbai University, while reiterating his government’s commitment to set up a grand memorial of the late leader in Mumbai. Several new schemes named after stalwart BJP leaders were announced too.

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