The Reserve Bank of India’s latest report on the financial status of the states has highlighted their poor financial management and advised them that they should avoid populist steps that can derail their economy. Even then, the Reserve Bank’s concern or advice about improving the economic health is largely overlooked by the states, most of which do not seem to initiate any follow-up action. For instance, the Reserve Bank has suggested that the fiscal deficit should be within the limit of three percent of the gross state income. Still, many states have deficits of four percent or more. It is to be noted that the fiscal deficit of the Center averages 3.1 percent. The Bank has recommended that states should make efforts to reduce their deficits to this level.
Just a week ago, the Maharashtra legislature was presented with supplementary demands worth over Rs.55000 crore. This amount is considered the highest so far for this purpose. Over the years, the tendency to draw up supplementary demands, which are in addition to the regular budgetary provisions, has witnessed a constant increase in the amounts. The state government has taken solace in the fact that the fiscal deficit of Maharashtra is around three percent, while taking into account its gross state income. It is fervently hoped that this deficit will be reduced to under three percent in the succeeding budget, bringing the state back to its robust financial health.
The Reserve Bank has expectedly expressed concern about the increasing debt burden on the states. The debt ratio of some states is more than 35 percent of the gross state income. The national average in this regard is 27.60 percent. The ratio of debt, ideally, should be around 25 percent of actual gross state income or less. In case of Maharashtra, this ratio is around 18 percent of the gross state income. It needs to be noted that the ratio of debt to gross state income has remained around 16 to 18 percent over the past ten years. At the same time, it must be remembered that the debt burden of the state crossed Rs.7 lakh crore. This is claimed to be a comfortable situation since according to the Reserve Bank standards, the debt ratio of the state is under the limit concerning the gross state income.
The present three-party coalition government in the state has continued to inflate the supplementary demands. Deputy CM and finance minister Ajit Pawar sought Rs 41243 crore through supplementary demands in his first session after joining the government. Earlier, his predecessor finance minister Devendra Fadnavis had presented his budgets, the last of which was in July monsoon session. Just within four months, new additional demands have come up.
It would be interesting to trace the journey of the state economy. In December 2014, then revenue minister Eknath Khadse had announced that Maharashtra had a debt of Rs.3 lakh crore. This was the total debt soon after the first Fadnavis government came to power in 2014. In 2015-16, the debt accumulation was Rs 3.24 lakh crore. When Devendra Fadnavis relinquished power in 2019-2020, the burden had swelled up to 4.71 lakh crore. As chief minister, Fadnavis weathered 15 legislature sessions during which supplementary demands of almost Rs.1.92 lakh crore were raised.
The installation of the three-party Shiv Sena-NCP-Congress government that came to power in 2019 was perceived to be against the supplementary demands but its so-called resolve fizzled out very soon. The apparent reason was the Covid pandemic and the natural calamities which hit the state soon after as torrential unseasonal rains and floods in many parts. The MVA government then presented supplementary demands of Rs.22000 crore. The tradition continues.
It can be seen from the first budget of the present government that the total debts of the state have exceeded Rs.7,07,000 crore. The ratio of this debt to the total gross income of the state is about 18 percent, as shown earlier. Like the per capita income figures, if we measure the total population of Maharashtra in comparison of the total state debt commitment, each citizen carries a debt of Rs. 56870 over her or his head. The budget presented by then finance minister Devendra Fadnavis in March this year revealed total debts of Rs.5,47,449 crore. Within four months after presenting this budget, the supplementary demands of Rs 41,243 crore have been presented in the monsoon session. The winter session has witnessed a fresh demand of over Rs.55000 crore.
Preparation of a budget is a prolonged and complex affair. Meticulous study is carried out for the expenditure for all planned activities by the finance and planning department. Substantial provisions are made to cover different contingencies for which funds are reserved. But it is experienced that more expenditure than anticipated is required for a variety of reasons. Such urgent needs are fulfilled through supplementary demands presented to the legislature. The supplementary demands necessarily cover the government’s unexpected, unplanned expenditure. However, if the volume of supplementary demands crosses a limit, the fiscal discipline is hit.
This is happening in most states of India but the case of Maharashtra is different. It contributes the largest share of taxes, GST collection and revenue to the national exchequer. Its reputation as the best governed state still persists. Hence, it becomes a matter of concern if the debts of the state keep on increasing like this. Considering the state economy size, it can safely raise loans of Rs.1,20,000 crore in a year. Nonetheless, the state government could be looking at raising loans of around Rs.80000 crores during the remaining months of this financial year.
A word of caution. The Reserve Bank has clearly warned the states not to implement the old pension scheme (OPS), implemented by a few non-BJP-rule states. In spite of this stern warning, deputy chief ministers Devendra Fadnavis and Ajit Pawar have obliquely indicated that they will rethink about implementing the OPS, possibly before the next general election. If OPS is implemented, the burden on the states will be four and a half times higher, as compared to the new pension scheme. The next step of the state government will be watched with considerable interest by lakhs of state employees and their family members.
A Column By
Dilip Chaware – Senior Editor
A media professional for 43 years, with extensive experience of writing on
a variety of subjects; he is also a documentary producer and book author.
