Saturday, 05 Oct, 2024
Maharashtra Chief Minister Eknath Shinde (Photo courtesy/X)
The state government faces severe fiscal challenges, with budgetary allocations for MLAs disrupting development priorities and leading to a soaring debt of Rs 7.11 lakh crore. Despite increased revenue, Maharashtra’s spending on capital projects has decreased, resulting in a revenue deficit.
The budgetary allocations made for MLAs from the breakaway factions of the Shiv Sena and Nationalist Congress Party (NCP) played a crucial role in forming the Mahayuti alliance government in Maharashtra. However, the 2024-25 Maharashtra budget, presented in June, highlights the detrimental effects of these allocations. The diversion of funds has disrupted the state's development agenda, raising serious concerns about fiscal discipline and risking progress in critical sectors, which could ultimately harm the state’s overall economic outlook.
Soaring debt levels
In an unprecedented move, the state government borrowed Rs 82,043 crore in 2023-24, raising its total debt burden to Rs 7.11 lakh crore. This alarming increase in debt raises significant questions about the sustainability of the state’s fiscal strategy, especially against the backdrop of a challenging economic environment.
Decline in development spending
Despite substantial borrowing, spending on development projects and capital expenditure (capex) has decreased. This trend reflects a troubling shift in priorities, as the state seems to be diverting resources away from essential infrastructure and development initiatives at a time when investment is critical for long-term growth.
Populist schemes and fiscal indiscipline
The Mahayuti government’s budget has introduced populist schemes carrying an additional fiscal burden of Rs 96,000 crore. While these initiatives may aim to appease various voter bases, they risk exacerbating financial indiscipline within the state. The pressure to fund these schemes could further strain the state’s already precarious fiscal situation.
Critical assessment by CAG
A report presented in the Maharashtra legislature by the Comptroller and Auditor General (CAG) in July provided a stark evaluation of the state government's fiscal health, attributing significant stress to a mismatch between receipts and expenditure. Revenue receipts grew substantially, rising from Rs 2,78,996 crore in 2018-19 to Rs 4,05,678 crore in 2022-23. However, this positive growth is overshadowed by a similar surge in revenue expenditure, which increased from Rs 2,67,021 crore to Rs 4,07,614 crore during the same period.
Implications for infra and services
The widening gap between revenue growth and expenditure has resulted in negligible additions to the state’s infrastructure and service network, as highlighted by the CAG report. Despite increased revenue, the state’s financial management has failed to translate into improved public services or development projects, raising long-term sustainability concerns.
Revenue deficit and capex concerns
The substantial gap between revenue receipts and expenditure has led to a revenue deficit, as noted in the CAG report. Capital account spending for 2022-23 was a mere Rs 61,644 crore, representing just 13 per cent of total expenditure. Additionally, the government utilised only 70 per cent of its total borrowings that year, raising alarms about effective financial management and resource allocation.
Rising fiscal deficit
These financial trends have significant implications, with the fiscal deficit ballooning to Rs 67,602 crore in 2022-23, a stark increase from Rs 23,015 crore in 2018-19. This rise underscores the challenges the state faces in maintaining fiscal discipline and achieving sustainable economic growth.
Committed expenditures strain resources
The report further highlighted that committed and inflexible expenditures—primarily wages, pensions, and similar liabilities—amounted to Rs 2,67,946 crore in 2022-23, accounting for 65.73 per cent of total revenue expenditure. This upward trend in fixed expenditures reduces flexibility and leads to diminished capital creation, hindering the state’s ability to invest in vital infrastructure projects.
Recommendations for bridging the revenue gap
The CAG recommended that the government take proactive steps to bridge the revenue gap by exploring additional resource mobilisation from both tax and non-tax sources. It criticised the underutilisation of grants for public health, ecology, and the environment. For instance, in 2021-22, Rs 768 crore was allocated for medical and public health, yet only Rs 684 crore was spent. Similarly, an allocation of Rs 466 crore for ecology and the environment resulted in actual expenditure of just Rs 49 crore.
Analysts are of the view that the CAG report as a concerning indicator of Maharashtra’s fiscal landscape. The state’s reliance on committed expenditures and rising deficits necessitates a review of budget priorities to ensure a balanced approach between immediate financial obligations and long-term developmental needs. Addressing these challenges is crucial for safeguarding Maharashtra’s economic future and achieving sustainable growth.
Looming fiscal challenges
The state government is now grappling with a daunting debt projection of Rs 7.8 lakh crore for the upcoming year. Despite the Mahayuti government’s assertions of having sufficient funds to support welfare schemes, the finance department has issued a warning about a looming fiscal deficit of Rs 2 lakh crore for 2024-25. This projected deficit raises substantial concerns regarding the feasibility of bridging such a significant gap, further complicating the state’s fiscal landscape. If unaddressed, these challenges could exacerbate existing financial pressures, undermining Maharashtra’s capacity for sustainable growth and critical infrastructure investment.
Rising debt stock
Additionally, the total debt stock for 2024-25 is estimated to be Rs 7,82,991 crore, representing 18.35 per cent of the Gross State Domestic Product (GSDP). This marks a continuation of the increasing trend observed over the past two years, with total debt stock as a percentage of GSDP recorded at 17.59 per cent in 2023-24 and 17.26 per cent in 2022-23. The persistent rise in debt levels relative to economic output raises alarms about the state’s financial health and sustainability. Continued growth in debt could hinder the state’s capacity to fund essential services and infrastructure projects, further complicating its fiscal management and economic outlook.
Economists say the government’s persistent underutilisation of capex, coupled with rising debt and fiscal deficits, poses significant risks to Maharashtra’s long-term economic health. To navigate these challenges, a strategic reassessment of budget priorities is essential, focusing on enhancing infrastructure investments and improving financial management.
(This is the fifth and final part of the India Tracker data journalism series, "When Welfare Means Farewell to Prudence.")
