Mahayuti govt loosens purse strings within prudence to bring back voters

The Mahayuti govt in Maharashtra has treaded a populist path in the FY25 Budget in a bid to woo voters ahead of the Assembly polls but has shown fiscal prudence

The Mahayuti government in Maharashtra last week unveiled its 2024-25 full Budget laden with targeted giveaways, aiming to reclaim voter loyalty lost to the Opposition in the recently held general elections. However, this was tempered with a vigilant eye on fiscal discipline. The government called it the supplementary Budget for FY25. The Interim Budget for FY25 had already been presented in February.

Taking a cue from the CM Ladli Behna Yojana, which garnered favourable responses in Madhya Pradesh's Assembly elections last year, the Eknath Shinde government introduced the CM Ladki Bahin Yojana. This new initiative pledges Rs 1,500 per month to women aged 21-60 years, adding an annual burden of Rs 46,000 crore to the state’s finances.

The Budget, presented last Friday, also includes provisions such as three free cooking gas cylinders per family per year, waiving electricity dues for farmers, and a Rs 10,000 stipend for youth skill training. These measures, coupled with adjustments in other heads, are projected to push revenue expenditure to Rs 5.19 trillion, a 2.16 per cent increase from the Interim Budget’s Rs 5.08 trillion.

Capital expenditure, slightly adjusted, stands at Rs 92,779 crore, compared to Rs 92,030 crore in the Interim Budget. This careful calibration ensures that the proportions of revenue and capital expenditures as a percentage of gross state domestic product (GSDP) remain consistent with the past nine years’ trends, avoiding any significant deviations. Only part of capital expenditure goes to generate assets which is called capital outlay.  

The Budget also offers tax relief on petrol and diesel for Brihanmumbai, Thane, and Navi Mumbai, reducing petrol prices by Rs 0.65 per litre and diesel by Rs 2.07 per litre. Despite these reductions and other exemptions, such as waiving the profession tax for armed forces personnel, revenue receipts are expected to rise slightly to Rs 4,99,463 crore, from Rs 4,98,758 crore in the Interim Budget.

The state’s own tax revenues (OTR) are projected to remain steady at Rs 3,43,040 crore, maintaining the OTR at 68.7 per cent of revenue receipts. While this figure is consistent with trends over the past nine years, a closer look reveals a marginal decrease to 68.68 per cent from the Interim Budget's 68.78 per cent.

This strategic spending increase has widened the revenue and fiscal deficit targets vis à vis the Interim Budget’s. The revenue deficit is expected to rise to Rs 20,051 crore, up from Rs 9,734 crore in the Interim Budget, while the fiscal deficit is projected to reach Rs 1.1 trillion, compared to Rs 0.99 trillion. In terms of percentage of GSDP, the revenue deficit would slightly widen to 0.5 per cent for FY25 against the 0.3 per cent projection in the Interim Budget, and the fiscal deficit to 2.6 per cent against the earlier 2.3 per cent projection.

States can keep their fiscal deficit up to 3.5 per cent of GSDP with 0.5 per cent linked to power sector reforms.

State Finance Minister Ajit Pawar, in his Budget speech, reaffirmed the ambition to expand Maharashtra's economy to $1 trillion. Currently, the state’s economy is projected to be around $0.5 trillion for 2024-25 (at the exchange rate of 84.42). Although no specific timeline was provided, previous statements aimed for this target by 2027-28. However, achieving this goal remains a formidable challenge, based on Business Standard’s analysis.

The Opposition bloc — Maha Vikas Aghadi — secured 30 of Maharashtra’s 48 Lok Sabha seats in the 2024 elections, while the ruling Mahayuti won only 17. An independent candidate who triumphed in Sangli later joined the Opposition ranks. With state Assembly elections expected later this year, the Shinde government’s budgetary strategies are crucial in shaping the political landscape.