Farm loan waivers, implementation of pay commission awards and issuance of UDAY bonds are putting pressure on states’ financial position, admitted N K Singh, Chairman of the Fifteenth Finance Commission on Wednesday. The Ujjwal Discom Assurance Yojana (UDAY), a flagship scheme of the Narendra Modi government, is a financial restructuring scheme to help debt-ridden discoms where states have been asked to bear 75 per cent of the debt burden.
On the other hand, five large states — Maharashtra, Punjab, Rajasthan, Karnataka and Uttar Pradesh — have so far announced farm loan waivers following a string of farmer suicides, which has widened the fiscal deficit in these states.
Singh said this on the sidelines of consultations held by the commission with the Maharashtra government in Mumbai on Wednesday. The commission, which is to make recommendations regarding tax devolutions and grants to states for the 2020-25 period, has held consultations in nine states until now.
Singh, a former bureaucrat, meanwhile also admitted that the commission was grappling with lack of “credible, stable and dependable” projections on Goods and Services Tax (GST) collections. “It is an issue we are grappling with,” he said, while adding that the Central Board of Direct Taxes and various states have made presentations to it in this regard. He further said that the commission was also facing the challenge of restructuring centrally sponsored schemes, and the issue of whether cess and surcharges levied by the Centre should be a part of the divisible pool. On Wednesday, commission members sought Maharashtra Chief Minister Devendra Fadnavis’s viewpoint on the loan waiver, who justified it.
Meanwhile, sources confirmed that the commission, while reviewing Maharashtra’s fiscal position, expressed concern over the declining share of capital expenditure from the state’s budget. Official statistics show that the share of capital expenditure in Maharashtra government’s budget has more than halved from 24 per cent in 2008-09 to 11 per cent in 2018-19. State’s fiscal managers, while making a presentation to the commission, admitted that “the declining trend of capital expenditure as a percent of the gross state domestic product was a matter of concern”. On the other hand, the share of revenue expenditure during the corresponding period has jumped from 75.7 per cent in 2008-09 to 88.9 per cent in 2018-19. “The reason for this increase was the rising salary and pension expenditure and expenditure on social services. Due to heightened expenditure on the revenue side, Maharashtra’s revenue deficit has increased in the last few years.”
But the Maharashtra government said on Wednesday that it remained “hopeful that the implementation of the GST will enhance the state’s revenue and help to deal with the increasing revenue expenditure”.
With the rising revenue expenditure squeezing capital spend from the state’s own budget, the state government argued that it had switched to off-budget borrowings, through state parastatals like the Mumbai Metropolitan Region Development Authority, the Maharashtra State Road Development Corporation, and the City and Industrial Development Corporation of Maharahstra Limited, among others, to fund big ticket infrastructure projects. It said that capital expenditure totalling close to Rs 2 lakh crore is being carried out through such parastatals.
Contending that the state’s debt to GSDP ratio was well within the 3 per cent norm, the commission members told the government that it still had borrowing space, which could be utilised for capital works.
Singh, however, noted that Maharashtra’s revenue projections were encouraging and that the state’s overall fiscal health was far better when compared to other states. He also clarified that an earlier press communication issued at the behest of the Finance Commission, which was seen to have raised the red flag over the state’s fiscal health, was based on figures shared by Maharashtra’s Accountant General. “We do not manufacture figures. But the picture that appeared to have emanated from the communication was misleading. There was no intention to cast aspersions on the state’s fiscal position,” said Singh. On Wednesday, Singh went on to laud Maharashtra’s fiscal prudence. Sources confirmed that Fadnavis had contacted Singh after the previous communication to clarify the state’s position over it.