Interest liability challenge for Raje

Lowering the interest payment liability in Rajasthan, which is over Rs 15 crore per day now, will be Chief Minister Vasundhara Raje's biggest challenge in the forthcoming budget.

Raje, who also is the finance minister of the state, will present her fourth budget in the assembly tomorrow.

The interest payment liability is growing on a yearly basis. From Rs 14.2 crore in 2004-05, it went up to Rs 14.3 crore in 2005-06 and now stands at around Rs 15.9 crore. Economists have already warned the state government about rising debt burden and increasing interest payments.

"Though Raje has been able to do something good for the state's economy, a lot still needs to be done for sustainable development of the state's economy," LN Nathuramka, an eminent economist, said.

The state's debt has already crossed Rs 72,600 crore and is over 52 per cent of the state gross domestic product according to budget estimates, which is almost double the Reserve Bank of India's norms of 26 per cent.

The per capita debt is also seeing a continuous rise and is put at Rs 11,229 crore as against Rs 10,656 crore in 2005-06.

That the state is going through financial stress can be seen from the fact that on the one hand the revenue sources are being choked while non-Plan expenditure is increasing.

Interest payment liability as a ratio of revenue receipts according to budget estimates of 2006-07 stands high at 24.2 per cent, compared with the RBI norms of 18 per cent and the Twelfth Finance Commission guidelines of 15 per cent by 2009-10.

With borrowings increasing, hardening interest rates is also a cause of worry for the state. "Raje will have do something drastic to curtail the ever increasing debt burden and interest payment, otherwise the state will move fast into a debt trap," economists warned.

Though Raje has won laurels for her financial acumen by showing revenue surplus of Rs 60.85 crore in budget estimates of 2006-07, she will have to shore up its revenue because the state is in the midst of fiscal stress.

The buffer repayment of market borrowings in 2012-13 for Rs 2,383 crore and again Rs 2,300 crore in 20014-15 is another troublesome feature for the state government.

Increasing pensions, wages and salary bill, which take up major parts of the government's revenue receipts, are another.

Gross fiscal deficit continues to be very high and according to budget estimates of 2006-07, was placed at Rs 5,140.59 crore.

Nathuramka said to improve Rajasthan's fiscal management, the state government should resort to more resource mobilisation by going in for better tax administration and reduction of wasteful unproductive expenditure.

State public sector undertakings should also go in for reform process with mergers, divestment and closures.

Nathuramka said the government should also look into power sector reforms.