Hasmukh Adhia panel suggests Gujarat reorient budget towards services

State must increase spending on tourism, IT, financial services, education and sports.

A panel set up to suggest how Gujarat could assist India in becoming a $5-trillion economy has said the state budget must focus on services and increase spending on education, sports, art and culture.

The panel, chaired by India’s former finance secretary Hasmukh Adhia, said Gujarat has the resources to increase spending in these sectors as its fiscal deficit is better than other states.

The state is expected to go to the polls by the year-end.

"Given that the next source of growth would be services, more efforts would be needed to enhance spending on services," said the panel said in a report submitted to the Gujarat government earlier this month.

The report wanted the state government to boost spending on services such as tourism, Information Technology (IT) and Information Technology enabled Services (ITeS), and financial services sector.

Currently, the state spends 0.4 per cent of total expenditure on tourism. However, the government also spends on various other things such as construction of roads, providing safe water supply and sanitation, electricity etc. which also contributes towards tourism sector development, but it is not specifically directed towards tourism, the report highlighted.

"... the true magnitude of tourism spending would be higher than 0.4 per cent of total expenditure. However, the potential of tourism to spur economic growth in the coming years in Gujarat is immense and merits additional government spending," said the panel.

It cited the National Council for Applied Economic Research estimation in 2015-16 that the tourism sector generates revenue for firms operating across sectors such as transport, hotels, agriculture, industry, financial services, health, garments, gems and jewelry, communication, trade and others.

The panel estimated that every Rs 100 spent in the tourism sector leads to an economy-wide impact of Rs 221. Its report said the IT / ITeS and financial services sector are two other areas where the state can increase funding.

Service sector development would not only need an enabling policy environment and appropriate infrastructure but also a skilled workforce. "Skilling is a public good and government intervention is essential for efficient provisioning of public goods, i.e., skilled workforce to attract investors in various services’ sub-sectors." the report said.

The panel also suggested that the state needs to enhance spending on education, sports, art and culture, as it has low per-capita spending compared to other states. The state spends 15 per cent of total expenditure on these heads.

The task force observed that Gujarat has sufficient fiscal space to step-up government spending in the sunrise sectors. It said Gujarat has followed a highly conservative path. As against the limit of 3 per cent of GSDP, the fiscal deficit has remained less than 2 percent. On the other hand, Haryana, Karnataka, and Tamil Nadu have resorted to additionally available resource envelopes to direct resources for key sectors.