Maharashtra budget: How will state combat debt, poor revenue?

  • HT Correspondent, Hindustan Times, Mumbai
  • Updated: Mar 19, 2015 18:23 IST

Maharashtra finance minister Sudhir Mungantiwar’s maiden budget may have some populist announcements, but the budget does not work well when it comes to maintaining a healthy financial situation — necessary for lower taxes and adequate development.

This is where the problem lies: the state’s debt is expected to reach Rs. 3.33 lakh crore this year, but expenditure on development has not gone up. Further, Mungantiwar’s budget has not taken steps to control unnecessary expenditure or increase revenue to maintain fiscal balance.

Instead, he relies heavily on the Centre’s decision to increase states’ share in central taxes. He is expecting Rs. 12,000 crore more from the Centre, and Rs. 5,000 crore through the premium that will be charged on additional FSI the developers avail for construction – in cities such as Mumbai.

Spending on development work is crucial to increasing the government’s productivity. But this is unlikely, as just 11.55% of the total budget is allocated for development, and more than 20% of newly borrowed money is being spent on non-development work.

The state has no way out of additional borrowing, as there is little scope to increase major taxes. “It is true that we could not reduce debt burden, but we do not have a magic wand that could have worked in 138 days of coming to power,” Mungantiwar said. “We know development spending was too little, but we will try to spend every penny, without initiating any cut at the end of the fiscal.”

The state’s debt percentage is 17.6% of the gross state domestic produce (GSDP) – this is within the Finance Commission’s permissible limit of 25.3%. “But, spending on establishment expenditure and payments of interest on debts are manifold, especially against the growth of revenue receipts. This means lesser spending on development,” said a finance department official.

Economist Abhay Pethe said he expected the plan size to be bigger to ensure more spending on development. “Maharashtra is one of the few states with a limited plan size. A bigger plan size will give room for more spending on development, even if it means higher borrowing,” he said.

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