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In an indication of worsening of Maharashtra’s finances, the state’s public debt is set to top the Rs 4 lakh-crore mark by March 2018, which will mean the government will have to spend a staggering Rs 31,027 crore from its spend plan for 2017-18 to service the debt. Other fiscal indicators too show a deterioration in 2016-17 compared to a year ago.
In its third budget since winning office in Maharashtra, the Devendra Fadnavis government on Saturday spelt out a Rs 2.84 lakh-crore expenditure plan with enhanced allocations for capital investments in farm-intensive sectors, employment and transportation headlining the budget. With the BJP facing heat from the Opposition over a demand for a complete farm loan waiver, the ‘baliraja’ or the farmer was the focal point of Finance Minister Sudhir Mungantiwar’s budget speech in the state legislative assembly. The finance minister expended over 30 minutes in his 2-hour speech to the farm sector.
But it was the worsening outlook of the state’s economy that stood out more prominently than the new announcements and interventions that Mungantiwar made in his speech. While the Centre’s Fourteenth Finance Commission norms require states to maintain a revenue surplus position, Maharashtra has consistently missed the target since 2013-14.
Revenue deficit numbers worsened alarmingly this year. Against a revenue deficit of Rs 3,644 crore forecast at the start of 2016-17, the budget document said that actual revenue deficit this year would cross Rs 14,377 crore or 0.63 per cent of the Gross State Domestic Product (GSDP).
“The financial year (16-17) started in the backdrop of drought conditions and unseasonal rains in some parts of the state during the previous three years. Hence funds had to be made available for disaster management and loss of crops on a large scale. The burden on the state exchequer also increase due to government’s decisions of cancelling the Local Body Tax and toll collections on some roads, and continuing subsidies on electricity bills. The committed expenditure of salary, pension, and interest is increasing consistently, which has also contributed to the revenue deficit,” the government’s fiscal strategy statement stated. While the revenue expenditure shot up, the government missed its estimated revenue target this year with collections from stamps and registrations fees over property transactions, excise duty on liquor and land revenue taking a hit in the post demonetisation period. The government has now admitted that it would fall at least Rs 798 crore short of its estimated target of amassing Rs 2.21 lakh crore this year. “It may take some time to reverse the phenomenon of revenue deficit and achieve a ‘nil’ level,” the budget document said. For 2017-18, the government has forecast a revenue deficit of Rs 4511 crore or 0.18 per cent of the GSDP.
The budget document admitted that “sufficient funds could not be made available for capital expenditure”. It also forced the government to raise the loans to cover the deficit. The fiscal deficit, or gross borrowings of the state government, in 2016-17 was Rs 50,318.27 crore against a budgeted target of Rs 35,031.38 crore. It stood at 2.2 per cent of the GSDP as against the budgeted target of 1.54 per cent. Mungantiwar, however, justified the additional borrowings said the fiscal deficit to GSDP ratio was well within the stipulated norm. In the ongoing year, the government raised additional loans for escalating the efficiency and financial capacity of state-owned power distribution company, Mahavitran, (Rs 4,560 crore), and Rs 12,773 crore for funding 26 major and medium irrigation projects selected under the Pradhan Mantri Krishi Sinchayee Yojana. Another Rs 30,000 crore was raised for work on an ambitious plan to construct 10,000 km of new roads under the hybrid annuity model. The government paid Rs 28,830 crore towards interest for these borrowings. The interest component is projected to rise to Rs 31,027 crore in 17-18. While fiscal norms mandate that the interest on government borrowings be capped at below 10 per cent of the revenues, it has shot to 13.3 per cent at present.
“An optimistic fiscal deficit target of 1.53% has been set for 2017-18, assuming normal monsoon conditions and favourable environment for economic activities result into accelerated growth,” the budget document said. But the forecast had a string attached. The revenue expenditure estimates for 2017-18 have not spelt out provisions for additional financial burden due to rise in salaries, wages, and pensions as per recommendations of the proposed Seventh Pay Commission. “The state has to make preparations for sustaining the additional financial burden,” stated the fiscal policy statement. The downward slide in the share of tax revenues in income receipts is another worry, admitted state’s fiscal managers.
Facing a cash crunch, the government has allocated just 11 per cent of its budget for capital expenditure in 17-18. An outlay of Rs 33,809 crore has been provided. Mungantiwar on Saturday proposed an alternate land securitisation model for raising funds for infrastructure projects. “In the next five years, we expect a requirement of Rs 1 lakh crore to finance key infrastructure projects. Given the constraints in raising such huge amounts, there is a need for an alternate method to raise funds. The government is proposing formation for a special purpose vehicle, Mahainfra, which will aggregate lands with all government agencies, and securitise them to raise infrastructure funds,” he announced.
To shore up revenues and cut unproductive expenditure, the government has said it would ensure time bound completion of projects and use direct benefit transfers to plug leakages in subsidies. “The expenditure policy will also be to priortise completion of ongoing projects. Staffing patterns will be reviewed.” The government is banking on economic growth following the advent of Goods and Service Tax.The government has also been forced to make inadequate allocations for various ongoing projects including flagship schemes, and will depend on supplementary demands and the district plans to fill the gap.
Politically, for the BJP, the budget made the right noises. With the Opposition upping the ante over the demand for farm loan waiver, Mungantiwar dedicated his budget to the farmers. “Through this budget, the government would like to reaffirm its commitment of standing firmly behind farmers,” he said. While stating that both the Centre and the state government were favourable to bailing out loan-distressed farmers, Mungantiwar announced a bevy of investments planned in the farm sector. The water resources department was allocated an enhanced budget for expediting irrigation projects, a special budgetary provision of Rs 250 crore was made for a project to supply water to drought prone Marathwada region, Rs 1,200 crore was allocated for government’s flagship drought proofing scheme, Jalyukt Shivar, and another Rs 225 crore was provided for digging wells and farm ponds.
Addressing the challenge of a strain on rural income and jobs, given the number of people the sector still employs although Maharashtra has been urbanising rapidly, was another focal point. Allocations were also enhanced for employment and skill development initiatives, the minority and backward classes. Mungantiwar even invoked Maratha warrior king Chhatrapati Shivaji and Shiv Sena supremo (late) Bal Thackeray in his speeches. He also said the state would strive for double digit growth in the coming year. But the Opposition too made its voice heard. Throughout the budget speech, Congress and NCP MLAs stood in the well chanting bhajans and raising slogans against the government over the farm loan waiver demand. BJP’s ally Shiv Sena, which had earlier threatened to disallow the speech if the loan waiver was not announced, did not demonstrate against the government.