Madhya Pradesh Budget: Increased Borrowings May Crimp Space For Capital Outlay
Madhya Pradesh Budget: The state's estimates a fiscal deficit of 4.56% in FY23, higher than prescribed limit.
Madhya Pradesh Finance Minister Jagdish Devda presented the 2022-23 budget for the state on March 9. This is Devda's second budget after he was appointed the finance minister in July 2020 and the last budget for a full year before the state elections in 2023.
Revenue Deficit And Increasing Interest Payments
The government projects a net expenditure of Rs 2.48 lakh crore and a net receipt of Rs 1.95 lakh crore in the next financial year. This brings the fiscal deficit for next year to 4.56% of gross state domestic product, over the 4% limit prescribed by the central government.
A revenue deficit target of 0.32% of GSDP has also been estimated. This may lead to increased borrowings and impact the already rising interest payments of the state. Interest payments have increased 39% in three years from Rs 15,918 crore in 2020-21 to Rs 22,166 crore in 2022-23.
Spending On Building Capital Assets
Madhya Pradesh estimates that it will spend Rs 45,686 crore in the next financial year on building capital assets, a 23% increase over the revised estimate numbers for 2021-22. This is an ambitious capital outlay estimate as interest payments and borrowings will reduce the fiscal space for spending on capital projects.
However, the central government’s capital outlay scheme for states could help. The government had announced an allocation of Rs 1 lakh crore to states to support their expenditure on capital investments in this year’s budget. The Madhya Pradesh government estimates that it would receive a Rs 6,500 crore long-term loan in 2022-23. The allocation will be in the form of 50-year interest-free loans over and above the normal borrowings of the states.
Sectoral Expenditure
Madhya Pradesh has allocated Rs 21,816 crore towards energy in the next financial year. This accounts for 8.9% of the total expenditure, significantly higher than the average expenditure on energy by states (4.4%).
Madhya Pradesh is among the states to observe an under-recovery of the cost of supply of power to consumers. In other words, for every Rs 1.77 worth of electricity that the state supplies, it receives only Re 1 from the consumer. Some of it is lost due to poor metering and inefficiency in billing.
In his speech, the finance minister announced that the state would be implementing the Centre's Revamped Distribution Sector Scheme. This scheme provides financial assistance to state-owned discoms and power departments to strengthen the power supply infrastructure, including installing prepaid smart meters. The funding is shared between the Centre and the states. Madhya Pradesh aims to spend Rs 15,434 crore over the next four years on the scheme. For 2022-23, Rs 2,500 crore has been allocated.
Impact Of GST Compensation
In 2021-22, Madhya Pradesh is estimated to receive 17% of its tax revenue (Rs 64,297 crore) in GST compensation grants. Given that the GST compensation comes to an end in June 2022, the state would need to consolidate its sources of revenue, such as stamp duty and registration fees and state excise duty.
Madhya Pradesh registered a 48% increase in state excise duty in 2020-21 (Rs 13,296 crore) and a 36% increase in stamp duty and registration fees (Rs 6,817 crore).
Read the full article on Madhya Pradesh Budget on the PRS Legislative Research Website.