Rs 14739 crore state off-budget borrowings invites flack

These funds, mainly meant for the irrigation sector, were raised at high interest rates through the special purpose vehicle (SPV) route.

The commission has recommended a focussed approach on three areas -- reduce fiscal deficit through augmenting revenues, particularly non-tax revenues; stop the practice of off-budget borrowings; and bring down the overall debt to sustainable levels.

Rangarajan made these observations here today at a meeting with Maharashtra chief minister Sushilkumar Shinde, and government officers and representatives from local bodies.

"A more disturbing feature of the state fiscal profile is the phenomenon of meeting government-related expenditure through offbudget borrowings, which nevertheless have to be serviced by the Budget. Most of the nearly Rs 14, 739 crore raised since 1996-1997 is at a high interest rate of 17.5 per cent per annum mainly for the irrigation sector," he said.

The growth in expenditure in Maharashtra has also been much faster than in its revenues, he said.

"While revenue receipts have grown by 68.2 per cent between 1997-1998 to 2002-2003, the non-plan expenditure which constitutes most of the revenue expenditure has grown by 90.5 per cent. This is not only due to salaries and pension, but also due to budgetary support in the form of subsidies and loans for certain sectors," he said

Maharashtra's trend growth rate of the gross state domestic product (GSDP) has also been rather low at 4.2 per cent in real terms during the 1995-2002 period, according to the finance commission.

Rangarajan, however, commended the Maharashtra government's efforts on its tax mop-up steps.

"The state government has done well in recent years on its tax revenue side in recent years as reflected in the increase in its own tax revenue to GSDP ratio which reached 8.2 per cent in 2002-2003. The performance on the non-tax revenue side, however, is not so encouraging.

Its ratio in relation to GSDP has declined from three per cent in 1987-1988 to 1.6 per cent in 1999-2000, a level at which it has remained in 2002-2003 (revised estimates)."

Because of the revenue-expenditure mismatch, the consolidated revenue deficit inclusive of interest on offbudget borrowings has gone up from 0.9 per cent of GSDP in 1996-1997 to 3.2 per cent in 2002-2003 based on latest estimates. The consolidated fiscal deficit has gone up from 3.3 per cent to 5.3 per cent of GSDP, Rangarajan said.

He, however, added that the Budget for 2003-2004 projects a decline in these ratios. Rangarajan also noted that Maharashtra's performance has been better than the national average in regard to certain social and demographic indicators such as the fertility rate and the literacy rate.

The 12 Finance Commission has also taken note of the state government's proposal to enact a legislation on the fiscal responsibility Bill.

Shinde, during his meeting with Rangarajan, suggested that the divisible pool of central taxes be raised to 40 per cent, including surcharge. The state government has projected the total pre-devolution non-plan revenue deficit of Rs 34,684 crore for the 2005-2010 period.

Shinde also drew attention to problems faced by the state apart from suggesting a horizontal distribution of resources among states and restructuring of public finances including debt stabilisations.