In terms of per capita income, Maharashtra is among the richest Indian states. Its fiscal situation, however, does not reflect its relative income position.
As a per cent of GDP, its revenue deficit, fiscal deficit and debt stood at 3, 3.5 and 17.3 per cent respectively in 2000-01. Over 87 per cent of its borrowings were financing consumption expenditure adding to the unsustainability of the debt being contracted.
The fiscal health of any given state is obviously a function of its revenue and expenditure situation. Expenditures of the states, particularly on the revenue account, have become quite rigid as a majority of these expenditures are committed in nature.
On the other hand, the revenue cycles of the states mimic the trends in their revenue bases, tax effort and transfers from the Centre. With inflexibility in expenditures, a downturn in revenues is bound to accentuate fiscal stress.
With almost 85 per cent of the GDP originating in the non-agricultural sector (industry and services) Maharashtra
