Regional disparities to top 15th Finance Commission’s agenda in Maharashtra

Mumbai: Sharp regional and sectoral disparities within Maharashtra and the challenges of rapid urbanization will top the 15th Finance Commission’s Mumbai consultations from 17 to 19 September.

The Commission, led by chairman N.K. Singh, held its first round of consultations with economists in Pune in August. In Mumbai, the Commission will meet representatives of political parties, trade and industry, urban local bodies, and Panchayati Raj institutions.

In a background note that lauded Maharashtra for its industrial prowess, high income levels and advanced urbanization, the Commission also pointed to intense regional disparities as a “characteristic feature of the state since its inception in 1960”. The state seems to have faltered in translating its high economic growth into commensurate human development, the note said.

It said Maharashtra is a front-runner in terms of better fiscal management since it enacted the Fiscal Responsibility and Budget Management (FRBM) Act in 2006. The state’s fiscal deficit remains well within the limit of 3% of gross state domestic product (GSDP) while the debt stock to GSDP ratio is also well within the 17.5% limit set by the Maharashtra FRBM Rules, 2011.

“Yet, a revenue deficit of 0.5% of GSDP continues to be a worrisome factor for Maharashtra; the revenue deficit to GSDP ratio has increased even as the fiscal deficit to GSDP ratio has fallen. This indicates that debt is being used for revenue expenditures,” the Commission observed. It recommends “more stringent steps to achieve complete sustainability. Complete sustainability would require a huge increment in the revenue generation capacity of the state.”

The Commission said Maharashtra’s share in tax devolution has risen in the past four finance commissions, and the central transfers increased from 11% to 16% of total revenue receipts during 2012-17. The state has not incurred any revenue loss after implementation of the goods and services tax (GST), the commission said. “The tax to GSDP ratio for the State stands at about 6.24, which is far lesser than other comparable, large-sized developed states. It is also worrisome to note that the targeted budget estimate of the tax-GSDP ratio shows a secular decline over the past decade. Debt sustainability should be addressed through higher revenue generation rather than through expenditure contraction,” the Commission recommended.

On urban governance, the Commission pointed out that the state government allocates about 20% of its revenues to urban local bodies while a whopping 78% share goes to the Panchayati Raj institutions. “The ratio of funds allocated to urban local bodies is far lesser than the ratio of population residing within the urban areas in Maharashtra. The pace of decentralisation needs to be increased. As of March 2015, only 14 functions out of the indicated 29 functions were fully transferred to the local bodies,” the note says. This, when the state had an urbanisation rate of 45.23% in census 2011 as compared to the national average of 31.16%, it observes.

Noting that Mumbai city alone contributed around 2.5% of India’s GDP and 30.5% of India’s total tax collection, the commission observed among Maharashtra’s 36 districts, 16 located in Vidarbha and Marathawada, have per capita incomes below the state and national average. Of the 351 Development Blocks, 125 blocks in the state have been identified as socially backward on the Human Development Index. On irrigation, only 18% of Maharashtra’s total cultivable land is irrigated while the national average is over 35%, even though Maharashtra accounted for 35% of the total number of irrigation projects in India, the commission notes.