UP govt needs to reinvent its financial model to come out of backwardness

The most populous state remains behind the national average on most parameters, with lower expenditure levels than needed

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“Uttar Pradesh is so situated and has such a large population, that it is convenient to treat it as a zone by itself. It is North India,” the 1951 Census report said. Despite the bifurcation and the birth of Uttarakhand in 2000, the statement still holds true categorically. Home to more than 230 million people, UP would be the fifth largest country in the world solely based on population--bigger than any country in Europe, Africa and Latin America. 

This mammonth size, however, ends at the number. 

Even though it is the cultural hub of north India, UP lags the national average on major health and education indicators. Its gross enrolment ratio in all levels of education is lower than India's average. Its fertility rate and infant mortality rate are higher than India’s, while the proportion of births in institutional facilities is lower.

After so many years of independence, the state still has a lot of catching up to do. It could not manage turning the tide even though the Central Government poured in money nearly equal to the taxes UP collected. 

The Reserve Bank of India’s compilation of state finances data shows that UP received more money from the Centre than it collected from both, tax and non-tax sources. 

While UP earned Rs 1.09 trillion from its own tax revenue in 2017-18, it got Rs 1.08 trillion from its share in central taxes. And while UP earned Rs 20,000 crore from non-tax revenue sources, it got Rs 40,000 crore from Centre as grants. 

In 2021-22, UP has budgeted 37 per cent growth in its tax revenue, which includes its own tax revenue as well as share in central taxes. In reality, the state government has been able to manage a growth of 29 per cent, short of the target. 

In fact, the expected growth in own tax revenue at 50 per cent seems more unlikely than that in other sources of revenue. 

When it comes to expenditure, or spending the amount collected as revenue and capital receipts, the government of UP has been falling behind its own path. From 19 per cent of gross state domestic product (GSDP) in 2017-18, the total expenditure by UP fell to 16 per cent of GSDP in 2020-21 (revised estimates). This happened under the current government led by Yogi Adityanath. 

Thus, the UP government reduced its spending levels closer to assembly elections. It remains to be seen if expenditure gets a boost this financial year. 

The ambitiousness in revenues looks pale in front of that in capital outlay. In 2021-22, the Adityanath government has planned to increase capex by 67 per cent compared to the previous year (2020-21). In the first eight months of the financial year, the state has spent Rs 34,000 crore on capex, against the annual capex plan of Rs 1.14 trillion. 

The slowdown in spending surfaced before Covid-19 happened. In 2019-20, UP’s total expenditure fell by 1 per cent compared to 2018-19. The state boasted a revenue surplus of 4 per cent of GSDP in that year, but at the cost of reduced expenditure. 

Even this year, the state has planned a revenue surplus of 1.07 per cent of GSDP (Rs 23,210 crore), at the cost of a lower expenditure to GSDP ratio than before. 

With the state Budget at 20 per cent of GSDP, the majority of the economic well-being of the state depends on private sector activity, much like any other state. But the engine does not seem to have fired in recent years. 

The per capita income of UP went into stagnation from 2018-19. The state government claims doubling of per capita income. But in fact, per capita income is likely to have grown by only 41 per cent under the term of Adityanath. It grew 65 per cent under the previous government