Saturday, Nov 01, 2014

Sops begin to hurt state’s economy, govt talks of austerity measures

During the meeting, Chavan urged Finance Commission members to take into consideration its current financial position and the proposed increase in salaries of employees. During the meeting, Chavan urged Finance Commission members to take into consideration its current financial position and the proposed increase in salaries of employees.
Written by Sandeep A Ashar | Mumbai | Posted: February 1, 2014 12:47 am | Updated: February 6, 2014 12:18 pm

The Prithviraj Chavan-led Maharashtra government’s move to go liberal on sops in an election year has begun to affect the health of the state’s economy.

During a meeting with members of the 14th Finance Commission in Mumbai on Thursday, the state government conceded to a possibility of moving to a revenue deficit position.

This basically means that the state’s revenue expenditure in 2013-14 will overshoot its revenue income.

Under the Fiscal Responsibility and Budget Management (FRBM) Act, governments are required to maintain a revenue surplus position while keeping the fiscal deficit to 3 per cent of the gross state domestic product (GSDP).

That’s not all. The increase in revenue expenditure has come at the cost of squeezing of capital expenditure. The government on Thursday also admitted to a decline in capital expenditure as a ratio of the GSDP as compared to 2012-13.

During the meeting, Chavan urged Finance Commission members to take into consideration its current financial position and the proposed increase in salaries of employees based on the Seventh Pay Commission recommendations while finalising the state’s share in central devolutions.

To tide over the crisis, Chavan also requested the Commission for amount the Centre owes the state towards VAT compensation (Rs 1,686 crore) and the central service tax (Rs 554 crore).

The state government sought Rs 3.44 lakh crore in funds for the next five years (2015-16 to 2019-20). A one-time grant of Rs 12,447 crore was sought for plans to transform Mumbai into a world-class city.

On January 20, the government announced subsidy on power tariffs to all class of consumers. The move, seen as a step to woo voters ahead of elections, is set to burden the state’s exchequer by Rs 1206 crore in 2013-14.

Besides this, the government’s decisions of extending aid to drought and flood relief victims (Rs 700 crore) and distributing essential food commodities at subsidised rates under the Food Security Act (Rs 250 crore) have also impacted its fiscal health.

The Chavan government has also announced sops for modernisation of madrassas and for promoting the girl child, among others. With the Congress-led state government battling anti-incumbency, sources said election sops would continue to be doled out.

In his budget speech, state’s Finance Minister Ajit Pawar, who skipped Thursday’s meeting due to ill-health, had set Rs 1.55 lakh crore as the revenue income target for 2013-14.

Of this, Rs 1.07 lakh crore was to come from the state’s own tax revenue. Sources said that while the government would meet this target, the revenue expenditure has overshot its original projections.

The state finance department has already unveiled austerity measures by asking departments to avoid unwanted travel and office expenses.

The measures further propose a 10 per cent cut in non-plan expenditure. In the case of spending on development projects (plan expenditure), the government, for now, has decided against imposing a blanket cut in expenditure.

Instead, departments have been asked to review the status of expenditure on individual projects and indicate ones that on whom further spending could be deferred, a senior official said.

The government has already released 80 per cent of the amount budgeted towards plan expenditure to various departments. Indications are that further amounts won’t be released unless required.

The revenue earning arms of the state – sales tax department, stamp and registrations department, transport department – have been asked to mop up additional revenue even as there are plans to borrow some external loans to make ends meet.

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