Three years into Fadnavis govt’s term, worry lines on economy

Maharashtra CM Devendra Fadnavis (File)

Three years ago, when the BJP-led government came to power in the state, it unveiled a white paper on Maharashtra’s finances with outstanding public debt having swelled to Rs 2.94 lakh crore at the end of October 2014 while promising fiscal consolidation.

But three years on, even as the government blames the mismanagement of the state economy by the previous Congress-NCP regime, the debt stock has soared over 1.4 times , and is now estimated to cross the Rs 4.13 lakh crore mark as per budget estimates for 2017-18. In fact, state’s fiscal managers have cautioned that this debt on the state exchequer may mount even further, while pointing out that the budgetary estimates hadn’t factored in the government’s recently announced Rs 34,000-crore farm loan waiver scheme, and the burden on account of the Seventh Pay Commission.

Though government officials admit that the bigger worry is that the government has strayed from the fiscal consolidation path. “It (the government) has let political consideration push fiscal rehabilitation on the back burner,” said one of them.

In his first budget, Finance Minister Sudhir Mungantiwar had announced that his government’s would focus on a deficit-reduction drive. The plan was also to curb rising revenue expenditure so that there could be more fiscal leeway for investment in infrastructure and social spending.

Since the BJP came to power, revenue expenditure has ballooned by over 39 per cent — from 1.78 lakh crore in 2014-15 to Rs 2.48 lakh crore (estimated) in 2017-18. Contrary to the government’s promise, the share of revenue expenditure in total budget estimates has risen from 86 per cent in 2014-15 to 87 per cent in 2017-18. But spending on capital works has now been squeezed to just 11 per cent of the budget in 2017-18. The white paper had pointed out that capital expenditure as a share of gross state domestic product was just 1.7 per cent, whereas other big states in the country spend almost 3 per cent of their gross state domestic product (GSDP) on capital expenditure.

The cushion for the government has come from the fact that the state’s income or the GSDP has clocked positive growth rates during the three years, and has consistently grown at a faster clip than the national GDP (see box).

In 2015-16, the first year of the BJP-led government’s term, Mungantiwar had projected a revenue deficit of Rs 3,757 crore, and a consolidated fiscal deficit of Rs 30,733 crore. But by the time the year drew to a close, the gap between the revenue expenditure and the income (revenue deficit) had grown to Rs 5,338 crore, just as fiscal deficit was contained to Rs 28,381 crore. In 2016-17, when elections were held for local bodies across Maharashtra, the state’s economic outlook only worsened further, with the finance managers blaming the BJP’s “political moves” for burdening the state’s exchequer. The revenue deficit slipped to an all-time high of Rs 14,378 crore, while fiscal deficit soared to Rs 50,318 crore.

The public exchequer bled from revenue loss due to the abolition of the local body tax (Rs 7,357 crore) and the partial waiver of the toll tax (Rs 800 crore). Compensation and relief measures for crop damage due to drought-like conditions and unseasonal rains burdened the exchequer further. While the exchequer is still reeling from these revenue losses, the populist move to write off farm loans, and lowering of taxes for petrol and diesel (Rs 3,267 crore) have further set back the state’s economy.

Mungantiwar has admitted that the political leadership abolished the local body tax on August 1, 2015, on the basis of an incorrect assumption that the new Goods and Service Tax (GST) regime would kick in from April 1, 2016.

There was a further setback when the Centre refused to factor in the abolished tax while computing the compensation package under the GST to the state. A senior government official, who wished not to be named, confirmed that the state’s bureaucracy had cautioned the political leadership against these moves.

Following the farm loan waiver move, the government has now imposed a 20 per cent cut on development spending, while both Fadnavis and Mungantiwar have publicly indicated that the government would miss fiscal targets this year as well.

While the revenue flow so far in 2017-18 (as compared to the corresponding period last year) has been better, the farm loan waiver is expected to raise revenue expenditure manifold. The norms of the 14th Finance Commission make it necessary for the states to maintain a revenue surplus position but the state’s revenue position has been consistently on the backpedal since 2012-13. In 2014-15, the revenue deficit had soared to Rs 13,383 crore, prompting the Fadnavis government to bring out the white paper. It has now reached Rs 14,378 crore.

With the tight fiscal position forcing the government to opt for more open market borrowings, the debt servicing bill is estimated to surpass Rs 31,027 crore by March 2018. While the 14th Finance Commission norms states that the interest payments on borrowings must be limited to 10 per cent of revenue receipts, the debt servicing estimates for 2017-18 are 13.3 per cent of such receipts.

The bureaucracy, meanwhile, has also warned of fiscal slippages due to the loan waiver scheme. Following the cut in spending, the government is largely banking on off-budget borrowings to meet costs of big-ticket infrastructure projects. Mungantiwar has argued that the state’s economic credentials are sound, and that the government has enough elbow room to borrow funds. While the government is also exploring the option of enhancing revenues through a land securitisation model, sources said this was unlikely to materialise in the near future. On Monday, the government announced an average 30 per cent increase in the excise duty on beer, expecting to raise an additional Rs 150-175-crore revenue this year from the move.

While the white paper had blamed the Congress and the NCP of fiscal indiscipline, official data show the Fadnavis government too has raised Rs 1.02 lakh crore in supplementary grants during these three years. The white paper had criticised increased supplementary grants of the previous regime, stating that these had “dented the credibility of the state’s budget”. In October 2014, the Fadnavis government had inherited a troubled economy. Three years on, the economic outlook continues to remain cloudy.