Maharashtra's fiscal indicators look healthier

Maharashtra's fiscal indicators have started looking much better of late, but it is still not enough, said the first Maharshtra development report prepared by the Planning Commission. The obvious reason: The state failed to control expenditures, and its revenues stagnated in mid-90s.

According to the report released by the Planning Commission deputy chairman Montek Singh Ahluwalia on Tuesday, the state's annual growth rate fell to 4.5 per cent between 1995 and 2002 from 7.2 per cent in early 90s, and during 2003-04 and 2004-05, it increased to 6.4 per cent but remained below the 10th plan target of 8 per cent.

This slowdown in growth was not cyclical but came about owing to "systemic bottlenecks" that were not addressed in time, the report noted.

The fiscal deficit of the state in terms of percentage to the state gross domestic product went up from 2.8 per cent in the early 90s to 5.8 per cent between 1995-2000 and again showed a downward trend to fall up to 4.1 per cent, but it is nowhere near the 90s figures.

The major reason behind revenue stagnation was the fall in state's share of central taxes and grants. This trend had been observed since 1980, and a rise in the state's own tax and non-tax revenue compensated for the drop in funds from the central pool.

The state's inability to mobilise revenue through taxes other than sales tax is another factor behind the stagnation on the revenue front, the report said.

While the share of excise duty remained around 10 per cent of total revenues, the share of stamp duty remained around 11.5 per cent.

The report said there is a lot of scope for increase in tax collection through stamp duty, considering the high value of real estate in the state. But to achieve that, Maharashtra needs to rationalise the tax rates, remove the anomalies in stamp act and do away with stamp duty concessions given to cooperative housing societies.

The report further said nearly 70 per cent of property transactions in Maharashtra are under-valued, as the state's stamp duty rate of 10 per cent is too high.

Besides, the report recommended exploring the possibilities of expanding the scope of professional tax, which contributes nearly 4 per cent of the state's revenue. It also recommended the government to concentrate on the vehicle tax collection system. It said the state loses much revenue because of high rates, clandestine operations and lax administration, and there is scope for substantial improvement on all the three counts.

The report also recommended implementation of the policy of one-time vehicle tax for small commercial vehicles to boost the revenues.

It highlighted that land revenue, taxes on goods and passengers, and electricity duty are the worst performers and there is tremendous scope to improve the state's performance in all these.

Another major reason behind the state's expenditure getting out of control was tremendous spurt in fixed expenses that include salaries, pension and payment of interest. Fixed expenses jumped from Rs 54.99 to Rs 82.70 during 1990 and 2000. Implementation of fifth pay commission recommendations was the singular factor because of which the state's finances collapsed. As the state's expenditure on salary and pensions rose from Rs 100.31 in 1998-99 to Rs 166.35 in 1999-2000.

The other major reasons behind deteriorating state's financial health that find mention in the report are borrowings by the special purpose vehicles (SPVs), created by the government of Maharashtra, like Krishna Valley Development Corporation and Maharashtra State Road Development Corporation, and the state supporting these SPVs through budgetary backing or giving guarantees, subsidies to the agriculture sector through procurement schemes or through electricity bills etc.