Page 22 - CII Artha Magazine

State of States

State Finances Finance Commission. For As per the budget estimate the revenue and capital provisional estimates of

for the current year, Uttar
account to support growth
Rajasthan, it will be a
2021-22, only Karnataka and
with inclusion.
deviation from the
Pradesh and Maharashtra are
Madhya Pradesh exceeded
estimated to raise the highest
mandated levels for two
their budgeted levels of
During consecutive years. revenue receipts, followed by The analysis shows a distinct revenue expenditure target
Tamil Nadu and Rajasthan,
improvement in the quality of
in 2021-22 in support of
while among the laggards are
State expenditure, as is borne
lives & livelihood. Moreover,
UTTAR PRADESH AND
Goa, Jharkhand and
out from the crucial ratio of
the revenue expenditure for
MAHARASHTRA
Chhattisgarh.
revenue outlay to capital
2022-23 is budgeted to
outlay (RECO). The study
BUDGETED TO HAVE
Covid-19 and THE HIGHEST Of the total revenue receipts indicates that, for the 17 further rise by 20.1 per cent
as compared to the previous
accrued by states in 2021-22,
states under consideration,
REVENUE RECEIPTS
year.
77 per cent has been driven
the RECO is set to moderate
IN FY23
by a rise in the states own tax
to 5.3 in the current fiscal, as
revenue while 14 per cent is
However, worryingly, the
compared to 6.3 and 7.0 in
Beyond Revenue accruing from the devolution 2021-22 and 2020-21 share of committed revenue
made through the central
respectively. This is only
expenditure in revenue
Receipts
share in state taxes including
marginally higher than the RBI
receipts, which includes
grants. In addition to tax
suggested ratio of 5.0. The
expenditure on salaries,
revenue, states’ own non-tax
pre-pandemic five-year
interest payments &
The improvement in state
contributed 8 per cent to the
stood at 5.3.
finances during 2021-22 could revenues have also (FY16-20) average of RECO pensions, has seen a steady
rise in the last three years.
mainly be attributed mainly to exchequer. Though the ratio is
a rise in the states’ revenue The improvement in RECO is
receipts, both tax as well as A similar trend is also premised on 42.3 per cent budgeted to moderate to
non-tax. In fact, except for a replicated in the state budgets jump budgeted in the 46.9 for the 17 States in
blip experienced in 2020-21 in 2022-23, wherein 57 per consolidated capital 2022-23 (BE) as compared
cent, amounting to Rs 18.8
to 54 per cent in the
Introduction recovery, there is an increase due to pandemic-related lakh crore will be raised expenditure of states in the previous year, it continues to
current fiscal as compared to
restrictions, revenue receipts
in revenue mobilisation which
in turn has improved the of the states have been through its own resources, an expansion of 23.8 per cent remain high. The higher
while 42 per cent, or around
proportion of committed
seen in 2021-22. Among the
generally witnessing an
T he Covid-19 pandemic finances of the state uptrend in the post pandemic Rs 13.7 lakh crore will come states, Uttar Pradesh is expenditure has meant that
has led to a major
governments. No doubt, there
from the Centre (in the form
deterioration in the finances are challenges ahead for the period. of state’s share in central budgeted to have a capital the states have had a limited
outlay of over Rs 1 lakh crore
of both the Centre and state states as the scars left by the This is evident from the fact taxes and grants). in 2022-23, the highest among flexibility to decide on other
governments. States have pandemic are yet to heal that revenue receipts rose expenditure priorities
been pushed to make completely. Yet, the economy sharply to 24.0 per cent in all states. The continuous especially developmental
significant expenditure on has responded to the 2021-22 (provisional actuals, REVENUE support by the central outlay. Unsurprisingly, the
healthcare, provide free pandemic with commendable Trends in Disaggregated data for 17 PA) as against a sharp decline EXPENDITURE-CAPITAL government to states in their share of developmental
rations, implement Covid-19 resolve and the states have states shows that Kerala OUTLAY RATIO TO capex spending through the expenditure in GDP for the
induced restrictions, maintain acted in concert with the recorded the highest fiscal to (-) 4.3 per cent in 2020-21. MODERATE TO announcement of measures states stood a dismal range
supply of essential items, and center to improve the quality Fiscal Deficit deficit to GSDP ratio at 4.7 In 2022-23 (BE), revenue such as permitting an of 1.5-2.0 per cent in the
enforce Covid appropriate of their deficit. per cent as per 2021-22 (PA) receipts are expected to PRE-PANDEMIC additional borrowing of 0.5 period FY20-FY21 (the
behaviour. This resulted in a The analysis of the followed by Telangana at 4.2 grow at a somewhat slower AVERAGE IN FY23 per cent of their GSDP to
sharp increase in the revenue This perception is largely consolidated finances of the per cent and Bihar at 4.1 per rate of 20.4 per cent, but achieve their capex targets latest data points for which
expenditure of states even as based on the study of the states indicates that fiscal cent. On the other hand, there is a discernable Expenditure and providing interest-free data is available), which is
their revenue collections Budgets of 17 major states, deficit as a percentage of lowest deficit was reported improvement from the loans, among others, has quite low for a developing
were badly hit due to a sharp which account for 93 per GDP, which had deteriorated by Jharkhand (0.8 per cent), pandemic years. Among the incentivized states to spend country like India. In this
decline in economic activity. cent of our national GDP and sharply to 3.9 per cent of followed by Gujarat (1.1 per individual states, Odisha trends on capex. context, it is suggested
provide a fair assessment of GDP in 2020-21(actual), cent) and Chhattisgarh (1.7 recorded the highest growth human capital needs to be
But after a year of acute fiscal the fiscal position of states. improved to stand at 3.0 per per cent) which took a of 46.6 per cent in its revenue The rise in revenue Further, there has been some developed by focusing on
stress experienced during the cent of GDP in 2021-22 (as relatively conservative path receipts as per the provisional rationalization of revenue schools & hospitals and
pandemic, there has been a per the provisional estimates, while managing state finances. actuals of 2021-22 as mobilization in both 2021-22 expenditure in the specifically, raising public
discernable improvement in FISCAL DEFICIT PA henceforth). However, For the current fiscal, states compared to that in the and 2022-23 (BE) has post-pandemic years, albeit at expenditure on health &
state finances during the EXPECTED TO WIDEN higher expenditure growth is have budgeted a lower fiscal previous year. This was provided some fiscal space to a slower pace. This is education to 2.5 per cent
2021-22 (RE) and it is likely to push the deficit deficit, with only Rajasthan followed by Rajasthan logging the states to increase their understandable considering
anticipated that the trend IN FY23 ON THE upwards in 2022-23 to 3.4 and Madhya Pradesh a growth of 35.7 per cent total expenditures to finance that the economy is yet to and 6.0 per cent of GDP
would be sustained during BACK OF HIGHER per cent during the year expected to see deficit during the same period. growth and revive the fully recover from the respectively within a
2022-23 (BE) as well. In fact, EXPENDITURE which, while higher than the exceeding the 4.0 per cent Haryana (9.5 per cent) and economy. The states, too, have devastation caused by the specified timeframe.
with the economy making a previous year, is well below mark mandated by the 15th Kerala (12.7 per cent) utilized the additional pandemic. As per the
credible journey towards brought up the bottom. resources to spend on both
the FY21 level.
22 ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY 23
QUARTERLY JOURNAL OF ECONOMICS
QUARTERLY JOURNAL OF ECONOMICS
DECEMBER 2022 DECEMBER 2022