Saturday, 05 Oct, 2024
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Although the state government asserts that all loans are sanctioned by the Centre and comply with financial conditions, experts warn that meeting electoral promises and maintaining welfare schemes could severely impact Madhya Pradesh’s finances. With debt approaching Rs 4 lakh crore, the fiscal strain is considerable.
Madhya Pradesh is grappling with severe fiscal strain due to its expansive free seed distribution schemes and the Ladli Behna Yojana, pushing the state’s debt to alarming levels. The state plans to borrow a record Rs 88,540 crore this year—a 38 per cent increase from the previous fiscal—comprising Rs 73,540 crore from market sources and Rs 15,000 crore from the Centre. Despite reassurances from Deputy Chief Minister Jagdish Devda that this borrowing is within legal limits, concerns about the state’s long-term financial stability are mounting.
Debt and Fiscal Sustainability
Debt is expected to exceed Rs 4 lakh crore this financial year, pushing per capita debt beyond Rs 50,000. With a current debt of Rs 3.75 lakh crore, planned borrowings surpass the state’s total budget of Rs 3.65 lakh crore. Projections indicate that debt will top Rs 4.4 lakh crore by FY 2024-25. The Fiscal Responsibility and Budget Management Act permits borrowings up to 3 per cent of GDP (gross domestic product), with an additional 0.5 per cent in special cases, allowing loans up to Rs 65,000 crore. However, the rising debt load raises concerns about fiscal sustainability.
Revenue and Expenditure Pressures
The state’s income of Rs 2.52 lakh crore nearly matches its revenue expenditure of Rs 2.51 lakh crore. Economists warn that while borrowing in tight fiscal conditions carries risks, expanding revenue streams could mitigate the impact. Key programmes such as the Ladli Behna Yojana, costing Rs 18,000 crore annually to support 1.29 crore women, and the subsidised electricity scheme, adding Rs 5,500 crore annually, further strain the budget.
New Financial Directives and Spending
Following the budget presentation in July, the finance department imposed a new directive requiring prior approval for withdrawals from funds allocated to 125 schemes across 47 departments. This impacts significant programmes including the Mahakal Complex Development Scheme and Ladli Laxmi Yojana. The Ladli Behna Yojana demands approximately Rs 18,000 crore per month, reflecting the state’s commitment to welfare despite ongoing investment in administrative assets such as a new government aircraft and ministerial vehicles. Additionally, the government’s subsidised electricity scheme—providing power at Rs 100 per month for consumers using 100 units—adds another Rs 5,500 crore to annual costs. These populist policies, without a corresponding increase in revenue, are deepening the state’s fiscal challenges.
Budget Allocations and Future Plans
The budget includes substantial allocations for various subsidies and direct cash transfers, totalling Rs 34,780 crore, with additional funds for salaries, pensions, and loan interest payments amounting to Rs 1,17,945 crore. The projected fiscal deficit stands at 4.1 per cent of GDP, surpassing the central government’s recommended limit of 3.5 per cent. Chief Minister Mohan Yadav plans to expand the state’s budget to Rs 7 lakh crore over the next five years, focusing on infrastructure and support for women and tribal communities.
Balancing Development and Fiscal Discipline
While the state government emphasises that all loans are approved by the central government and align with financial conditions, experts caution that fulfilling electoral promises and sustaining welfare schemes could severely strain Madhya Pradesh’s finances. With the debt nearing Rs 4 lakh crore, the fiscal pressure is significant. The BJP’s social engineering strategy, which includes a wide range of welfare programmes, incurs considerable social and economic costs, challenging the state’s ability to balance development with fiscal discipline.
The planned record borrowings, coupled with rising debt and a projected fiscal deficit exceeding recommended limits, underscore the urgency for fiscal prudence. While the government’s focus on welfare and infrastructure development aims to drive growth, the substantial debt load and tight revenue streams pose risks to long-term fiscal stability. Balancing these ambitious initiatives with sustainable financial management will be crucial for ensuring the state’s economic health and achieving its developmental goals.
(This is the third part in the India Tracker data journalism series “When Welfare Means Farewell to Prudence.”)
