No headroom for states to bear social sector burden

Though the Centre hopes to enhance states’ share in the spending on social sector schemes from the 2012-13 Budget, a study indicates many of the latter would be unable to take an extra load.

An analysis of states’ fiscal situation by the National Institute of Public Finance and Policy (NIPFP) says the overall situation is not a cause of major concern but several states are undoubtedly in trouble.

M Govinda Rao, director of NIPFP and member of the Prime Minister’s Economic Advisory Council, said: “The whole premise that state finances are in better shape is questionable. Apart from that, there is a huge deficit in the power sector. This year, it works out to be one per cent of GDP, all states put together. They are again asking the Centre to bail them out.” The fiscal space for the Centre has got severely constrained due to sluggish revenue realisation and a ballooning oil subsidy bill, set to force major slippage in achieving the earlier’s Budget’s fiscal deficit target of not exceeding 4.6 per cent of GDP.

Finance minister Pranab Mukherjee said in his pre-Budget meeting with state finance ministers on Wednesday that with a significant scaling up of development efforts in social sectors in recent years, a higher transfer of resources to states and growing integration of the domestic market, there was an urgent need for harmonising economic policies at various levels.

According to the NIPFP study, the aggregate revenue deficit of the states relative to Gross State Domestic Product (GSDP) was 0.4 per cent in 2009-10 and is estimated to be lower at 0.2 per cent in 2010-11 (revised estimate). Though the Budget estimate for 2011-12 shows a surplus, this may not be actually realised, says Rao.
 

	Revenue Deficit			Fiscal deficit
States	2009-10	2010-11RE	2011-12BE	2009-10	2010-11RE	2011-12BE
Bihar	-1.75	-1.21	-2.97	3.13	4.99	2.93
Jharkhand	0.01	0.12	-2.69	2.83	4.00	2.85
West Bengal	5.39	3.14	1.61	6.23	3.98	2.99
Uttar Pradesh	-1.36	-0.24	-0.82	3.60	3.83	2.76
Punjab	3.03	2.02	1.78	3.49	3.55	3.91
Madhya Pradesh	-2.53	-1.97	-1.45	2.86	3.47	3.00
Haryana	1.97	1.73	0.87	4.67	3.39	2.61
Tamil Nadu	0.76	0.58	-0.07	2.54	3.27	2.16
Andhra Pradesh	-0.26	-0.10	-0.58	3.38	3.12	2.60
Gujarat	1.62	1.08	-0.08	3.53	3.11	2.43
Karnataka	-0.48	-0.42	-0.29	3.24	3.07	2.87
Kerala	2.18	1.41	1.97	3.42	2.89	3.48
Maharashtra	0.09	0.55	0.00	2.90	2.43	1.93
Orissa	-0.70	0.17	-0.03	1.40	2.62	2.79
Rajasthan	1.86	0.29	-0.10	4.03	2.49	2.30
All major states	0.63	0.51	-0.08	3.38	3.12	2.60
All states*	0.41	0.19	-0.33	3.35	3.04	2.54
Centre	5.20	3.40	3.40	6.60	5.10	4.60
* Includes special category states, excluding Nagaland BE: Budget Estimate RE: Revised Estimate Note: Figures as per cent of Gross State Domestic Product (GSDP) for states and Gross Domestic Product (GDP) for Centre Source: NIPFP

The non-special category states in the aggregate show a revenue deficit of 0.6 per cent of GSDP in 2009-10 and 0.5 per cent in 2010-11 (RE) and are budgeted to have a surplus of just about 0.1 per cent in 2011-12. The earlier Finance Commission had marked Kerala, Punjab and West Bengal as states with severe fiscal imbalances. The NIPFP study shows the revenue deficit in a number of other states is also very large.

It was doubtful whether the new governments in Kerala, Tamil Nadu and West Bengal would manage to reduce the revenue deficits, Rao said.

The fiscal deficit indicators show a similar picture. Among individual states, the worst fiscal situation is in West Bengal. The fiscal deficit in 2010-11 (RE) showed a sharp deterioration in a number of states, most notably in Bihar, Jharkhand, Punjab, Tamil Nadu and Uttar Pradesh.