Statsguru: From Bihar to West Bengal, a peep into state Budgets

Most states have presented their own Budgets for the next fiscal year. States that are going to the polls saw the presentation of a vote-on-account, a temporary provision that enables government spending till a new government is formed. 

An analysis of select state Budgets —with the help of a report by the State Bank of India — shows that they have more than one thing in common. To keep their expenditure at the desired levels at a time of significant revenue losses, all states have expanded their fiscal deficits — similar to what the Centre did last month. Chart 1 shows the extent of fiscal expansion in the current as well as next year. These select states have projected a fiscal deficit of 4.5 per cent of gross state domestic product (GSDP) this year, much smaller than the level of 9.5 per cent of GDP projected by the Centre. Three states have crossed the level of 6 per cent.

Despite borrowing more, the states will spend less than the Budget estimate this year, reveals chart 2. Cuts in capex have been stronger than those in current spending, or revenue expenditure. Only a few states such as Bihar, Madhya Pradesh and Rajasthan have raised both capex and revenue spending in their revised estimate, in line with the Centre. 

Nevertheless, states have ensured that spending on both fronts is higher than last year, showing fiscal expansion. The thrust on enhanced health expenditure this year, however, seems missing in the intent for 2021-22, shows chart 3. But, at the same time, states have shown the intent to balance the capex slowdown this year, supported by strong growth in projected revenues. 

Growth in the economy is a good marker for revenue expansion. In a year when the National Statistics Office has projected a 3.8 per cent contraction in nominal national GDP, 13 select states put together expect marginal growth in their GSDP, chart 4 shows. Growth projections of some states, especially Uttar Pradesh, seem unrealistic. 

Finally, the one thing that remained unchanged is the proportion of money states spend on committed expenditure. Maharashtra spends almost half of its Budget on salaries and pension of government servants, and interest payments towards outstanding debt, reveals chart 5. A strong resurgence in economic activity is critical for pushing up states’ revenues and developmental spending.

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines | Source: State Bank of India, respective states, RBI