1. Fiscal Analysis Division
STATE FINANCES :
A STUDY OF BUDGETS OF
Fiscal Analysis Division
DEPR
RESERVE BANK OF INDIA
May 27, 2016

2. Importance of the Report
Unique report which is the primary source of information on disaggregated state-wise fiscal data.
Provides analysis and assessment of finances of state governments.
Inputs of this report is key to the compilation of combined government finances, the bi-annual publication of which is an IMF SDDS requirement.
The theme of this year’s report is ‘Quality of Sub- national Public Expenditure’ – critical to growth while achieving fiscal consolidation.

3. Major Deficit Indicators of State Governments
(Amount in Rs billion)
Item
(BE)
(RE) 1 2 3 4 5 6 7
Revenue Deficit
-239.6
-203.2
105.6
-543.0
183.4
-537.2
(-0.3)
(-0.2)
(0.1)
(-0.4)
Gross Fiscal Deficit
1,683.5
1,954.7
2,478.5
2,950.6
3,654.6
3,333.3
(1.9)
(2.0)
(2.2)
(2.3)
(2.9)
(2.4)
Primary Deficit
315.4
450.0
789.5
1,018.6
1,726.0
1,141.8
(0.4)
(0.5)
(0.7)
(0.8)
(1.4)

5. Accounts
The fiscal position of states deteriorated during , leading to re-emergence of a revenue deficit (RD) after a gap of three years.
The reduction in consolidated revenue expenditure was more than offset by a reduction in revenue receipts, reflecting the slowdown in overall economic activity.

6. Accounts (Contd.)
The consolidated revenue receipts-GDP ratio of states declined due to reduction in both own revenue and central transfers.
In particular, revenue from stamps and registration fees, sales tax/value added tax (VAT) and state excise as well as shares in central taxes decelerated in from a year ago.

7. Latest update (based on 25 states)
Estimates prepared on the basis of consolidated data available in respect of 25 state governments (for which budgets have been presented and data received) shows that all key deficit indicators of states have deteriorated in (RE) from (BE) as well as
GFD/GDP ratio of states crossed the threshold of 3 per cent in (RE). Last time it occurred was in (3.3 per cent of GDP).
States, however, intend to revert back to fiscal consolidation in as they have budgeted for a revenue surplus while pruning GFD/GDP ratio to 2.8 per cent.

8. Revenue Receipts
Despite an increase in the share of tax devolution from 32 per cent to 42 per cent of the divisible pool on the recommendations of the FC-XIV, the Central transfers-GDP ratio is budgeted to decline due to the sharp reduction in grants-in- aid.
Could be an outcome of discontinuation of many CSS schemes in the Union Budget , resulting in a decline of funds under the state plan scheme.
These changes have led to a decline in central transfers to states by 0.3 per cent of GDP.

9. Central Transfers to states

10. Outstanding Liabilities
The outstanding liabilities of state governments have experienced double digit growth since
However the consolidated debt – GDP ratio remains below the target recommended by FC- XIII for states.
Despite the budgeted reduction in GFD/GDP ratio in , outstanding liabilities would increase on account of the phased takeover of bonds issued by power discoms under the Financial restructuring Plan (FRP).

11. As the participating states in the FRP would have to progressively take over the entire bond liabilities of the discoms by extending guarantees by , their liabilities would increase in the coming years.
In this regard, the new initiative of the Government to financially turnaround discoms – Ujjwal Discom Assurance Yojana (UDAY) – may likely alleviate the non-performing asset (NPA) problem of banks, but would increase the liabilities of participating states.

12. Trend in Expenditure

13. Trend in Committed Expenditure

14. Expenditure on Social and Physical Infrastructure in 2013-14

15. Quality of Expenditure - Select Indicators
(Percentage of total expenditure)
States
Social Sector
Physical Infrastructure
Comitted Expenditure 1
Education
Health
Roads & Bridges
Energy
Int. Paym.
Pension
Admin. Exp
Group A
Mean
17.4
4.3
5.0
8.7
11.8
5.7
Coeff. of Variation
12.6
19.4
12.0
57.6
11.1
13.5
23.3
Group B
16.4
4.2
3.7
13.7
6.6
10.2
9.9
48.5
73.2
36.4
20.3
39.6
Group C
16.8
3.6
6.3
6.5
7.4
9.8
7.0
9.4
10.9
21.2
56.5
29.3
21.4
28.9
All States
16.9
4.0
5.1
6.7
10.5
10.1
16.6
33.3
64.8
39.4
24.0
32.6

16. Empirical Results: Expenditure composition and growth

17. Empirical Results: Expenditure efficiency - education

18. Empirical Results: Scores on expenditure quality

19. Impact of FRBM
A well-designed fiscal responsibility legislation (FRL) helps in containing fiscal deficits and rationalizing expenditure biases, while addressing the problem of time inconsistency and enhancing transparency and accountability (Corbacho and Schwartz, 2007).

20. Table: Total Expenditure (per cent)
Total Expenditure/GSDP
Pre-FRBM
Post-FRBM
Group A
Goa
22.9
17.0
Maharashtra
14.0
12.2
Haryana
15.5
13.4
Gujarat
16.8
13.1
Tamil Nadu
14.7
15.2
Group B
Kerala
15.6
15.4
Punjab
16.7
15.9
Karnataka
16.1
17.7
Andhra Pradesh
17.1
West Bengal
14.4
Group C
Rajasthan
18.0
Jharkhand
20.3
19.4
Chhattisgarh
19.2
Madhya Pradesh
21.1
Odisha
19.9
17.6
Uttar Pradesh
17.4
21.2
Bihar
26.2
24.1
Average
17.8

21. Table: Revenue and Capital Outlay (per cent)
State
Rev.Exp./GSDP
Capital Outlay/GSDP
Category
Pre-FRBM
Post-FRBM
Group A
Goa
20.0
13.9
2.8
3.1
Maharashtra
12.0
10.3
1.5
1.7
Haryana
13.2
11.3
1.9
Gujarat
14.3
10.5
2.5
Tamil Nadu
12.7
0.9
2.0
Group B
Kerala
14.0
14.1
1.0
Punjab
14.9
14.7
1.2
1.1
Karnataka
13.7
Andhra Pradesh
14.2
West Bengal
13.5
0.8
Group C
Rajasthan
15.3
2.3
2.4
Jharkhand
15.6
15.9
3.5
3.2
Chhattisgarh
13.3
15.5
3.0
Madhya Pradesh
17.3
16.2
2.2
3.3
Odisha
17.2
15.2
1.8
Uttar Pradesh
15.1
1.3
3.7
Bihar
22.4
19.3
4.3
Average

22. Table: Developmental and Non-developmental Expenditure (per cent)
State
Dev.Exp./GSDP
Non-dev.Exp./GSDP
Category
Pre-FRBM
Post-FRBM
Group A
Goa
14.2
12.2
8.7
4.8
Maharashtra
8.3
5.1
3.8
Haryana
9.7
5.8
3.6
Gujarat
11.8
9.1
4.9
3.9
Tamil Nadu
9.6
4.6
4.7
Group B
Kerala
9.5
8.0
5.9
6.5
Punjab
8.5
7.6
8.1
Karnataka
11.4
12.4
4.4
Andhra Pradesh
11.5
12.1
5.5
West Bengal
8.9
6.4
Group C
Rajasthan
11.3
6.7
5.3
Jharkhand
14.6
13.4
5.7
6.1
Chhattisgarh
10.6
4.5
4.2
Madhya Pradesh
13.5
14.8
6.2
5.4
Odisha
11.7
7.9
5.6
Uttar Pradesh
10.0
12.7
7.0
7.7
Bihar
15.4
16.6
10.8
7.5
Average
11.2

23. Some Issues Fiscal consolidation - revenue augmenting measures,
Improving the viability of Discoms
Reforming State Level Public Enterprises (SLPEs)
Proposed implementation of GST
Rationalisation of centrally sponsored schemes (CSS) - prioritize and raise the productivity of expenditure
Reinvigoration of State Finance Commissions (SFCs) - greater synchronisation between state governments and local bodies in devolution and utilisation of resources.

24. thanks