For the first time since 1986-87 and thanks to buoyant tax collections, all 29 state governments are collectively poised to actually collect more revenues than what they are projected to spend in the current fiscal year.
According to data compiled from the budgets presented by state governments this year, the revenue surplus would work out to a minimum of Rs17,000 crore, more than 0.3% of the gross state domestic product (GSDP). This projection does not include data for Uttarakhand and Punjab, which recently went to the polls and are therefore yet to present their budgets.
If the projections do pan out, it will be the first time that the states would be in this position in 21 years. They would also be doing so a year ahead of the deadline of 2008-09 set by the 12th Finance Commission (2005-10), a body that reviews Centre-state funds flows every five years.
The states that have budgeted to collect revenues much higher than their current spending are Karnataka, Chhattisgarh, Orissa, Madhya Pradesh and Uttar Pradesh. Maharashtra will have a small surplus of about Rs511 crore, but is considered one of the best performers as it has managed to wipe out its huge deficit, which was Rs10,033 crore in 2004-05, in just three years.
The states that have shown unexpected buoyancy in income as well as exercised fiscal restraint are Uttar Pradesh, Orissa and even, to an extent, Bihar. The weakest performers are West Bengal, Kerala and Jharkhand.
Overall, 19 states are individually projected to have surplus revenues this year, compared with 15 in the year ended March.
“Practically every state is much better off than ever before. It’s a complete reversal of fortune in a mere three years,” says Tapas Sen, fellow, National Institute of Public Finance and Policy, an independent think tank that looks at federal finances.
According to revised budget figures submitted to the finance ministry, the states would have achieved this distinction in 2006-07, but for the fact that two states, West Bengal and Kerala, recorded a deficit higher than budgeted.
While West Bengal ended up with a revenue deficit of Rs8,419 crore compared with the budgeted Rs8,339 crore, in the case of Kerala it was Rs5,916 crore and Rs5,310 crore, respectively.
The year 2006-07 was budgeted to end with a small revenue gap of 0.1% of GSDP with Punjab having budgeted for a revenue deficit of Rs1,406 crore and Uttarakhand budgeting Rs156 crore.
Assuming that Punjab and Uttarakhand were able to retain their deficits at the budgeted level, the aggregate deficit for all 29 states comes tomuch less than the target of 0.1% of GSDP. Sen, however, cautioned that, since Punjab went to the polls, it might have recorded higher than expected expenditure, resulting in a higher deficit.
A senior finance ministry official who didn’t want to be identified, said that in the last fiscal, states as a whole also managed to record a fiscal deficit, or gross borrowing level, of 2.5% of GSDP, far lower than the Union government’s deficit of 3.7% of gross domestic product.
Under a debt-relief scheme recommended by the Finance Commission, states become eligible for substantial “debt write-off, linked to the reduction in the absolute levels of revenue deficits.” Last year too, 17 out of the 19 states that became eligible for the waiver have kept on track, and according to the official, even Punjab and Uttarakhand too are expected to be so. Some 10 “major” states have budgeted for less than 3% fiscal deficit this year.
Apart from Karnataka and Chhattisgarh, states traditionally revenue surplus, four states—Madhya Pradesh, Maharashtra, Orissa and UP—have shown consistent improvement, lifting themselves from the financial mess they were in three years ago, the official said.
From among the poorest ones, Uttar Pradesh and Orissa stand out.
In 2003, Orissa had accumulated debt that was worth 63% of its GSDP, while the average for all states was 34%. It is now projected to bring this down to 42% in 2007-08.
“The state has seen a huge buoyancy of revenues mainly due to increasing mining activity. And all that industrial activity has also brought about a huge rise in motor vehicles revenues,” says Sen.
Revenue receipts touched 21% of GSDP last fiscal, compared to 18% in 2005-06.
The recovery is signficant, since it is more broad-based and hence sustainable even with West Bengal and Kerala remaining the odd ones out.
Though Kerala has managed to pass a Fiscal Responsibility and Budget Management Act, it has failed to adhere to its timelines.
West Bengal remains the only state that refuses to either pass a fiscal legislation or tighten its expenditure, which has led to a projected revenue deficit of Rs7,167 crore the current fiscal—the highest among all states.