Maharashtra Public Finance and Fiscal Policy
Profile:-
- The Fiscal position has shown considerable improvement
- State has been able to achieve its FRBM targets except in 2009-10
- This has been possible due to reduction in Total Expenditure from 14.84% of GSDP in 2004-05 to 11.77% in 2013-14 (mostly on Salaries, Interest payment & other Revenue Expenditure)
- The Outstanding Debt has declined from 26.3% in 2004-05 and is expected to be around 18% of GSDP in 2013-14
- The Total Revenues has grown marginally from 9.9% of GSDP in 2004-05 to 10.2% in 2013-14.
- Maharashtra is the only state with the fiscal capacity to pay for a farm waiver from its own resources without breaching its fiscal responsibility commitments, according to a study by CARE Ltd.
- The ratings agency has reached the conclusion from an analysis of the state budgets for the current financial year, taking into account the fiscal deficit target equivalent to 3% of gross state domestic product set by the 14th Finance Commission.
- Recenlty Maharashtra government announced a sweeping farm loan waiver for marginal farmers which is expected to cost the state government Rs30,000 crore.
- The CARE analysis shows that among the states it analysed, Maharashtra has the highest fiscal headroom of Rs38,789 crore that it can sustain over its current fiscal deficit in order to remain on the fiscal consolidation path. This fiscal leeway has been calculated on the basis of the current financial year’s fiscal deficit projection and the additional headroom available as per the 14th finance commission’s recommendations.
- In this analysis, the key assumption of CARE is that states will stick to these revenue and expenditure targets set in their budgets and will not have to compromise on any of these headings.
Current Scenario:-
The Gross State Domestic Product of Maharashtra for 2017-18 at current prices is estimated to be Rs 25,35,213 crore. This is 11.8% higher than the revised estimate for 2016-17.
Total expenditure for 2017-18 is estimated to be Rs 2,83,753 crore, a 4.5% increase over the revised estimate of 2016-17. In 2016-17, there was an increase of Rs 14,456 crore (5.6%) in the revised estimate over the budget estimate.
Total receipts (excluding borrowings) for 2017-18 are estimated to be Rs 2,44,964 crore, an increase of 10.8% over the revised estimates of 2016-17. In 2016-17, total receipts decreased the budgeted target by Rs 831 crore (0.4%).
Revenue deficit for the next financial year is targeted at Rs 4,511 crore, or 0.18% of the state Gross Domestic Product (GDP). Fiscal deficit is targeted at Rs 38,789 crore (1.53% of state GDP).
Departments of Public Works, School Education, Tribal Welfare saw increases in allocations for the year 2017- 18. On the other hand, Departments of Agriculture, Energy, and Home witnessed a decrease in their allocation in 2017-18.
Budget Estimates for 2017-18:-
- The total expenditure in 2017-18 is targeted at Rs 2,83,753 crore. The revised estimate for the total expenditure in 2016-17 was Rs 2,71,449 crore, which is 5.6% (Rs 14,456 crore) higher than the budgeted target of 2016-17.
- The expenditure in 2017-18 is proposed to be met through receipts (other than borrowings) of Rs 2,44,964 crore and borrowings of Rs 38,893 crore. Total receipts for 2017-18 (other than borrowings) are expected to be 10.8% higher than the revised estimate of 2016-17.
Expenditure in 2017-18:-
- Government expenditures can be divided into (a) capital expenditure, which affects the assets and liabilities of the state, and (b) revenue expenditure, which includes the rest of the expenses.
- Total capital expenditure is proposed to be Rs 35,504 crore, which is a decrease of 4.2% over the revised estimates of 2016-17. This includes expenditure which leads to creation of assets, and provision of loans.
- Total revenue expenditure for 2017-18 is proposed to be Rs 2,48,249 crore, which is an increase of 5.9% over revised estimates of 2016-17. This includes spending on salaries, schemes, administrative expenses and pensions, etc.
- In 2017-18, the government estimates debt repayment on previous loans to be Rs 16,645 crore. In addition, the government proposes to pay interest on previous borrowings worth Rs 34,127 crore. Both these constitute 17.9% of the total expenditure of the state.
- In 2017-18, the government budgets to spend Rs 87,147 crore on paying salaries to its employees. In addition, the government budgets Rs 25,567 crore on pensions. Together, they constitute 39.7% of total expenditure.
Expenditure of key departments revised-up in 2016-17:-
In 2016-17, over-all expenditure of the government has been revised up by Rs 14,457 crore (5.6%). This reflected increase in expenditure of key departments.
- Energy: Grants provided to Maharashtra State Power Distribution Company Limited has been increased from a budget amount of Rs 5,313 crore to Rs 10,113 crore. In addition, loans provided to power companies of the state has been increased by Rs 4,960 crore.
- Agriculture: In 2016-17, the government budgeted to spend Rs 1,891 crore on providing crop insurance. This has been revised up by an additional Rs 2,513 crore.
- Urban Development: In 2016-17, the government budgeted to provide financial assistance to municipal corporations and municipal councils worth Rs 7,209 crore. This has been revised up to Rs 8,340 crore.
Expenditure on schemes in 2017-18:-
- NREGS: The government budgeted to spend Rs 4,257 crore on the Scheme in 2017-18. Out of this, Rs 3,807 crore is budgeted to be received from the centre in the form of grants. (In 2017-18, the centre budgeted to spend Rs 48,000 crore on the Scheme across all the states.)
- In 2016-17, the government estimates to spend Rs 3,244 crore on the Scheme, while it estimates to receive Rs 2,769 crore from the centre.
- SSA: In 2017-18, the government budgeted to spend Rs 1,649 crore on SSA. This is an increase from 40.5% (Rs 475 crore) over 2016-17. In 2016-17, the government revises up its spending on SSA from Rs 1,125 crore to Rs 1,174 crore. On the other hand, the grants for the Scheme in 2016-17 is revised down from Rs 675 crore to Rs 620 crore.
- PMAY: The government budgets to spend Rs 1,145 crore in 2017-18. In 2016-17, the government initially budgeted to spend Rs 1,302 crore, which was revised down to Rs 790 crore. This reflects a drop of grants from the centre, from Rs 909 crore to Rs 554 crore.
- NHM: In 2017-18, the government budgets to spend Rs 2,057 crore on National Health Mission. In 2016- 17, the government revised up its spending on the Scheme from Rs 1,248 crore to Rs 1,963 crore. This reflects an increase in grants from the centre (from Rs 847 crore to Rs 1,197 crore).
Receipts in 2017-18:-
- The total revenue receipts for 2017-18 are estimated to be Rs 2,43,738 crore, an increase of 10.8% over the revised estimates of 2016-17.
- State’s own tax revenue is expected to increase by 11.8% (Rs 16,206 crore) in 2017-18 over the revised estimates of 2016-17. Tax revenue in 2016-17 (RE) is estimated to be Rs 1,37,230 crore, which is lower than the budgeted estimates by Rs 6,991 crore (4.8%).
- The tax to GSDP ratio is targeted at 6.05% in 2017-18, which is the same as the revised estimate in 2016-17. This implies that the government estimates tax collection to grow at the same rate as the growth in the economy.
- Non-tax revenue is estimated to be Rs 20,156 crore. This is an increase by 21.3% (Rs 3,537 crore) from revised estimates of 2016-17. Revenue on account of urban development is estimated to be Rs 5,000 crore and non-ferrous mining is estimated to be Rs 3,700 crore.
- Grants from the centre are estimated to amount to Rs 32,739 crore in 2017-18. In 2016-17, grants from centre is revised up by 30% on top of the budget estimates.
- Taxes shared by the centre to the state is estimated to grow by 10.9% in 2017-18 to Rs 37,405 crore. In 2016-17, the government revised up its budget estimates by 6.6%.
- Under collection of tax and non-tax revenue in 2016-17 is offset by increase in estimates of transfers from centre. In 2016-17, the government budgeted to receive Rs 1,44,222 crore of tax revenue, which is revised down by 4.8%. This is driven by under-collection of Rs 3,548 crore on account of Stamp Duty. Further, non-tax revenue was revised down by 16.9%, to Rs 16,619 crore. This decrease is driven by under-collection of Rs 3,300 crore on account of urban development. On the other hand, receipts from state’s share in centre’s taxes are revised up by 6.6% and grants from centre are revised up by 30%. Note that the revised estimates of grants received from centre in 2016-17, is 92% greater than the actuals of 2015-16. This compares with a growth of 16.5% in transfers from centre to all the states in the same period.
- Composition of tax revenue: Sales tax is the largest component of the tax revenue of the state. Sales tax, levied on the sale of goods in the state is expected to generate Rs 92,839 crore in 2017-18. This is an increase of 14% from 2016-17. Note that GST rollout may have an impact on this collection.
- Further, the government is expected to generate Rs 21,000 crore through Stamp Duty and Registration Fee.
Deficits, Debts and FRBM Targets for 2017-18:-
The Fiscal Responsibility and Budget Management (FRBM) Act, 2006 of the state provides annual targets to progressively reduce the outstanding liabilities, revenue deficit and fiscal deficit of the state government.
Revenue deficit:
It is the excess of revenue expenditure over revenue receipts. A revenue deficit implies that the government needs to borrow in order to finance its expenses which do not create capital assets. The state estimates a revenue surplus of Rs 4,511 crore (or 0.18% of state GDP) in 2017-18. This implies that revenue receipts are expected to be lower than the revenue expenditure, resulting in a deficit. The estimate indicates that the state has not met the target of eliminating revenue deficit, prescribed by the 14th Finance Commission.
Fiscal deficit:
It is the excess of total expenditure over total receipts. This gap is filled by borrowings by the government, and leads to an increase in total liabilities of the government. In 2017-18, fiscal deficit is estimated to be Rs 37,789 crore, which is 1.53% of the state GDP. The estimate is within the 3% limit prescribed by the 14th Finance Commission.
Debt Stock:
It is the accumulation of borrowings over the years. In 2017-18, the outstanding liabilities are expected at 16.3% of state GDP (Rs 4,13,044 crore). In addition to these liabilities, the state has provided guarantees to loans of other entities worth Rs 7,776 crore at the end of 2015-16.
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