|
Economic
Development Policy |
| STATE
FINANCES |
Continue..... |
MACRO-ECONOMIC
TRENDS
The
state of Madhya Pradesh was ranked 11th among the 14 major
states in Gross State Domestic Product in 1998 (The World Bank.
In terms of per capita income (Rs.2205 in 1996-97) too, it
occupied the eleventh position in the nineties decade India - Policies to Reduce Poverty and Accelerate Sustainable
Development, The World Bank Jan 31. 2000.
Table
shows the growth of the state’s GSDP in recent times.Trend
analysis in this chapter has been carried out from 1993-94 onwards,
using the new series of GSDP figures as per the revised methodology
of the Central Statistical Organisation. |
| Gross
State Domestic Product of Madhya Pradesh
(In Rs. Cr.) |
| |
1993-94 |
1994-95 |
1995-96 |
1996-97 |
1997-98 |
1998-99 |
CAGR
|
| Current
prices |
52752
|
58610
|
65800
|
75345
|
81042
|
90736
|
11.5% |
| 1993-94
prices |
52752
|
54291
|
57156
|
60849
|
61427
|
65520
|
4.4% |
| Source:
NIC |
|
Table
portrays the declining share of the primary sector and the
emergence of the tertiary sector as the leading contributor to the
state’s economy for the future.
|
| Share
of various sectors to the state’s GSDP at Current
Prices (in %) |
| |
1993-94 |
1994-95 |
1995-96 |
1996-97 |
1997-98 |
1998-99 |
| Primary
|
41 |
39 |
37 |
38 |
36 |
37 |
| Secondary
|
24 |
25 |
26 |
25 |
26 |
26 |
| Tertiary
|
34 |
35 |
35 |
36 |
37 |
36 |
| Total
|
100 |
100 |
100 |
100 |
100 |
100 |
| Source:
NIC |
|
OVERVIEW
OF THE FISCAL SITUATION
The
state of Madhya Pradesh has been under substantial fiscal stress,
as exhibited by the following factors:
|
| » |
Revenue
expenditure has been growing at much faster rate compared
to that of revenue receipts.
|
| » |
Continual
increase in the volume of public debt and interest
payments.
|
| » |
Decline
in financial assistance from the centre.
|
| » |
Negligible
return in the short term on investments in Social
services, Public enterprises and Co-operatives and the
increasing dependence of such institutions on the state
administration for financial assistance.
|
|
The
state’s total expenditure grew 2.7 times from Rs.5898.75 Cr. in
1990-91 to Rs.15968.32 Cr. in 1998-99. During the same period the
revenue expenditure increased almost three times from Rs. 4746.10
Cr. to Rs.14217.63 Cr., while for capital expenditure the growth
has been one and a half times from Rs. 1152.64 Cr. to Rs. 1750.68
Cr. The corresponding growth in revenue receipts was 2.5 times
from Rs.4545.4 Cr. to Rs.11345.9 Cr..
The
situation has particularly worsened since the implementation of
the Fifth Pay Commission recommendations for Government employees.
Increase in salaries and wages were estimated to have imposed an
additional burden of the order of Rs. 1800 Cr. for the period
Jan.1996 to March 2000. Further, the additional liability on
account of enhanced dearness allowances were estimated to exceed
Rs. 500 Cr. during the same period Memorandum submitted to the Eleventh Finance Commission,
GoMP, Mar.
1999.
|
|
|
|
Fiscal
Deficits of MP
|
|
Source:
Finance & Account Statistics, GoMP, & State Finances: A
Study of Budgets, RBI various issues
|
The above situation is reflected clearly in the skewed fiscal
deficit figures shown in Figure
and Table. The state’s
Gross Fiscal Deficit (GFD) has risen from Rs.1019.3 Cr. in 1990-91
to about Rs.4126.7 Cr. in 1998-99, before reducing slightly to
Rs.3973.2 Cr. in 1999-00. In terms of fiscal indicators, MP’s
GFD had been hovering below 2.5% of GSDP in the mid nineties,
which was consistently better than the average of other states
during the same period. However, while the GFD of all states
combined has sharply increased to 3.8%
India - Policies to Reduce Poverty and Accelerate Sustainable
Development, The World Bank Jan 31, 2000
in 1998-99 post the implementation of the Fifth Pay Commission
recommendations, MP’s deficit has grown alarmingly to 4.55%. The
trend has been almost similar in case of revenue and primary
deficits, where MP’s figures for 1998-99 have been 3.16% and
2.53% respectively compared to figures of 1.9% and 1.8% for all
states’ op.cit..
|
|
Summary of Main Fiscal Trends of Madhya Pradesh
(% of GSDP)
|
| |
1993-94
|
1994-95
|
1995-96
|
1996-97
|
1997-98
|
1998-99
|
| Total
Expenditure
|
16.83
|
15.89
|
16.08
|
17.38
|
17.55
|
17.60
|
| -
Revenue Exp.
|
14.25
|
13.32
|
13.88
|
15.21
|
14.47
|
15.67
|
| -
Capital Exp.
|
2.58
|
2.57
|
2.20
|
2.16
|
3.08
|
1.93
|
| Total
Revenue Receipts
|
13.40
|
13.00
|
13.15 |
13.29 |
13.89 |
12.50 |
| -
Own Revenue
|
7.74
|
7.65 |
8.05 |
8.07 |
8.12 |
7.59 |
| -
Central Transfers
|
5.67 |
5.34 |
5.10 |
5.22 |
5.77 |
4.91 |
| Revenue
Deficit
|
0.85
|
0.33
|
0.73 |
1.92
|
0.58
|
3.16 |
| Gross
Fiscal Deficit
|
1.86
|
2.42
|
2.48
|
2.56
|
2.25
|
4.55
|
| Primary
Deficit
|
0.22
|
0.55
|
0.72
|
0.73
|
0.20
|
2.53
|
| Debt
Outstanding (end of year)
|
| -
to Centre
|
8.96
|
8.95
|
8.80
|
8.74
|
9.49
|
10.23
|
| -
to Financial Institutions.
|
2.19
|
2.88
|
3.23
|
3.64
|
4.23
|
4.62
|
| -
to Provident Funds
|
6.38
|
6.59
|
6.63
|
6.47
|
6.67
|
6.67
|
| -
Total
|
17.86
|
18.42
|
18.66
|
18.84
|
20.38
|
21.53
|
| (Source:
Analysed from Finance & Account Statistics of MP for
various years, White Paper on Economic and Financial
Status in Madhya Pradesh, Feb. 1999) |
|
The
sharp rise in fiscal deficit leads to unsustainable borrowing programmes
by the government.
FINANCING
THE FISCAL DEFICIT
The
fiscal deficit is largely financed by three sources, namely
|
| » |
Loans
from the Central Government
|
| » |
Borrowings
from the market (institutions and the public)
|
| » |
Borrowings
from the Public account (provident funds etc.)
|
|
In
the year 1999-00, 47% of the gross fiscal deficit of Rs.3973.2 Cr. has
been financed by loans from centre, market borrowings accounted for 14%
while the balance 39% came from other sources. The corresponding
percentages for all states were 42.1, 12.5 and 45.4
(State
Finances: A Study of Budgets of 2000-2001, RBI, Dec. 2000)
respectively.
Table shows that in the second half of the nineties decade the
outstanding market borrowings for financing fiscal deficit has increased
significantly to almost 21.5% of the total debt.
|
|
Profile of Debt Liabilities of Madhya Pradesh
|
|
|
1993-94
|
1994-95
|
1995-96
|
1996-97
|
1997-98
|
1998-99
|
|
Total
Stock of Debt (Rs. Cr.)
|
9420.88
|
10797.76
|
12281.13
|
14198.24
|
16517.42
|
19531.39
|
|
Loans
from Centre (%)
|
50.18
|
48.58
|
47.14
|
46.38
|
46.54
|
47.54
|
|
Loans
from Market (%)
|
14.08
|
15.64
|
17.33
|
19.31
|
20.75
|
21.48
|
|
Loans
from Public Account (%)
|
35.74
|
35.79
|
35.35
|
34.31
|
32.71
|
30.98
|
|
Interest
payment as % of public Debt
|
9.71
|
10.82
|
10.04
|
10.39
|
10.81
|
10.36
|
|
Interest
as % of Revenue receipts
|
12.28
|
14.36
|
13.38
|
13.74
|
14.75
|
15.07
|
|
State’s
Loans & Advances (Rs. Cr.)
|
2791.22
|
3143.61
|
3439.33
|
2897.04
|
2594.26
|
2803.48
|
|
Net
Loan Liability (Rs. Cr.)
|
6629.66
|
7654.15
|
8841.80
|
11301.20
|
13923.16
|
16727.92
|
|
Source:
White Paper on Economic and Financial Status in Madhya Pradesh, 1999 &
Memorandum submitted to the Eleventh Finance Commission, 1999.
|
|
The
compounded annual growth rate of total debt has also been a
disconcerting 9.54% in between 1993-94 and 1997-98. The rate of interest
payments as percentage of total debt as well as of revenue receipts has
shown a rising trend, and with further upwardly revision of interest
rates by the RBI, the situation is expected to worsen further.
The
amount of public debt has increased almost threefold between 1990-91 and
1998-99. Borrowings from the centre have increased annually at the rate
of 12.35% in the last decade. In terms of proportion to the total
repayment, interest obligation has risen from around 28% in 1990-91 to
34% in 1996-97. The interest component was reported to be the fastest
growing item in the expenditure, with annual growth rates of about 21%
and elasticity of 1.32 in relation to GSDP. Expenditure on general
services was the second fastest growing item, at 16.9 % annual growth
rates and elasticity of 1.08
(Report
on Madhya Pradesh Public Finance Reform – ADB TA 2943-IND).
Debt
as a percentage of NSDP for Madhya Pradesh has been around 22-23%.
Though the figures are favourable compared to states like UP and
Rajasthan, the difference with the leading states is easily perceptible
from Table. The share of debt servicing for MP has been around 7-8%
of the NSDP in the period 1987-88 to 1996-97. More than one third of
revenue expenditure has consistently been spent towards debt servicing,
and the share has been rising alarmingly towards 40% in the middle of
the last decade.
|
|
Debt to NSDP Ratio for selected states
(as %)
|
|
|
1990-95
|
1995-99
|
|
Andhra
Pradesh
|
21.7
|
22.2
|
|
Gujarat
|
22.4
|
18.6
|
|
Karnataka
|
20.3
|
18.6
|
|
Madhya
Pradesh
|
23.9
|
22.5
|
|
Maharashtra
|
15.3
|
13.7
|
|
Rajasthan
|
30.6
|
31.5
|
|
Tamil
Nadu
|
19.2
|
17.7
|
|
Uttar
Pradesh
|
30.1
|
29.9
|
| (State
Finances: A Study of Budgets of 2000-2001, RBI, Dec. 2000) |
|
|
|
Continue.....
|
