High expense on salary, pension hits spending by states, says research

On an average, salaries, pensions and interest payouts comprise 40% of the total expenditure

The spurt in expenses on salaries, pension and interest, is hurting states’ ability to earmark sufficient funds on socio-economic programmes and capital expenditures.

On an average, salaries, pensions and interest payouts comprise 40 per cent of the total expenditure. A study by CARE Ratings reveals that there are 12 states where the spending on the three components has surpassed 40 per cent of their overall expenditure. This has left the states with a shrinking expense pool for other critical areas.

In Himachal Pradesh, the share of committed expenditure is the highest at 61.9 per cent of the overall Budgeted spending. Kerala, with an outgo of Rs 1.27 trillion, has earmarked 52.3 per cent on the committed expenditure comprising salaries, pension and interest cost.

Other states with committed expenses higher than normal are Maharashtra (41.3 per cent), Tamil Nadu (45.4 per cent), Rajasthan (45.2 per cent), Assam (47.8 per cent), Uttarakhand (54.5 per cent), Tripura (52.2 per cent), Nagaland (57.7 per cent), Manipur (43.8 per cent), Mizoram (45 per cent), and Sikkim (46 per cent). All the other states with committed expenditures on the higher side have a total expenditure below Rs 1 trillion.

All large states, except Tamil Nadu and Rajasthan, do not rank among states with the highest budgets on committed expenditures. The study establishes that the top-10 states, judging by the descending size of expenditure, have 36 per cent of their expenses set aside for salaries, pension and interest costs, on an average.

As states bank on higher borrowings to finance their fiscal deficits and implement recommendations by the Seventh Pay Commission, their finances are under strain.

“Each state has its own developmental priorities and hence budget management becomes critical. Within the budget, the control of expenditure becomes imperative as it has been seen that as the size of state budgets have increased and states are walking on a tight rope of managing the fiscal balances”, the report by CARE Ratings noted.

On the interest cost, West Bengal (15.7 per cent) has the highest value, followed by Haryana (13.2 per cent) and Tamil Nadu (12.8 per cent). The average value of the interest cost as a percentage of total expenditure is 8.2 per cent.