Chhattisgarh Budget: Return To Old Pension Scheme Could Hurt State's Finances, Says India Ratings
Chhattisgarh Budget: State sees a return to revenue surplus in FY23 but is there a medium term concern building?
Chhattisgarh will see its fiscal deficit reduce and its revenue account return to a surplus in FY23, according to estimates presented in its budget.
Just like a number of other states, Chhattisgarh's spending estimates may overstate the extent of capital expenditure likely to be undertaken during the course of the year, said India Ratings & Research Pvt. in a March 22 note.
The state estimates its fiscal deficit at 3.33% of gross state domestic product in FY23, compared to 3.81% in FY22 revised estimates. This is well within the limits prescribed by the Fifteenth Finance Commission.
"However, India Ratings believes that the projections for fiscal deficit for FY23 are based on implausible assumption regarding capital expenditure and pessimistic nominal GSDP growth assumption," the agency said in its note.
Chhattisgarh expects its revenue account to return to a surplus in FY23, with a positive balance of 0.16% of GSDP projected. India Ratings expects the revenue surplus to be marginally lower.
Growth Estimates Understated
The state expects its economy to grow at 9.6% in nominal terms during the next financial year compared with 13.6% in FY22. This, according to India Ratings, is an underestimate. It sees the state's economy growing at a pace similar to last year, particularly given the levels of inflation.
Revenue Growth Seen Higher; Expenditure Mix Unrealistic
Based on its expectations for nominal growth, India Ratings expects Chhattisgarh to garner more revenue that it has budgeted for.
Revenue expenditure in FY23 is budgeted to grow at 3.95% over the revised estimates of FY22. This is out of line with the average revenue expenditure growth of 13.2% during FY16-FY20, the rating agency said.
Non-interest revenue expenditure, which generates demand in the economy, is budgeted to grow at 3.66% in FY23. "However, revenue expenditure excluding interest, salary and pension is budgeted to grow at 1.4% only even on a high growth rate of 26.5% in the revised estimates of FY22, which India Ratings believes is quite optimistic," said the note.
In contrast, capex is over-estimated both in the revised estimates of FY22 and the budget estimates of FY23.
Capex in the soon-to-be-concluded fiscal year is expected to be 60% above the previous year. However, data available so far suggests the state will be unable to meet this target, said India Ratings. In FY23, capex is seen rising Rs 7.47%, which is higher than the average annual growth of 6% and it comes atop a high base.
"The annual capex growth for FY23 appears to be steep on an already inflated base. India Ratings therefore believes the budget estimate for capex is stretched and unattainable in FY23," the note said.
Return Of The Old Pension Scheme
After Rajasthan, Chhattisgarh became the second state to go back to the old pension scheme for its employees. This is likely to exert pressure on state finances in the long term, said India Ratings.
The old pension scheme required greater contribution from the state towards pension benefits and was discontinued in the early 2000s as a way to improve finances of state governments.