Welfare schemes galore in Rajasthan's budget, but are they sustainable?

Like most other state budgets, Rajasthan's appears to have been crafted with one eye on the polls, while side-stepping on the issue of resources available to finance its programmes

In his state budget speech on February 23, Rajasthan Chief Minister Ashok Gehlot had made a major announcement on government pensions. He had said that the state would move from the New Pension Scheme (based on contributory pension) to the old pension scheme (based on defined benefits) for all employees who have joined after January 1, 2004.

Gehlot had said that the new NPS had made employees apprehensive about their financial security in old age and asked other states to reconsider the new NPS as well.

This wasn't the only bonanza announcement. Gehlot announced a rebate on the additional one-time tax on used two-wheelers and cars, state GST reimbursement to purchase e-vehicles and upfront assistance to buyers of two-wheeler and three-wheeler e-vehicles. He also reduced stamp duty on certain gift deeds

Gehlot had also said that under Chiranjivi scheme, an annual medical insurance cover of Rs 10 lakh will be provided for each family and 1,000 new sub-health centres and 15 new hospitals will be constructed.

He had also announced that the corpus of Chief Minister’s Krishak Sathi Yojana will be enhanced from Rs 2,000 crore to Rs 5,000 crore and 11 new missions will be launched under the scheme, including on micro-irrigation, organic farming, seed production and distribution, and food processing among others.

Rajasthan goes to polls in December 2023, unless early elections are called. As the only major state still held by Congress on its own, it is imperative that the GOP hold on to it, even though the state is famously averse to giving sitting Chief Ministers consecutive terms.

State elections across the board, be it Uttar Pradesh or West Bengal, show that the government that announces and then implements well-targeted welfare schemes usually does well at the hustings. They also need to publicise those schemes well.

It is clear that the thrust on welfare schemes and sops will continue leading up to the Rajasthan elections.

At this time, taking a look at Rajasthan’s finances is instructive, as it would give an idea of how these schemes are being financed, and how much of that is through borrowings rather than revenue.

The attached chart shows that for FY23, net revenue of the state has been budgeted at Rs 2.15 trillion, and expenditure at Rs 3.46 trillion. Borrowings have been pegged at Rs 1.22 trillion, fiscal deficit at 4.36 per cent of GSDP, and revenue deficit at 1.76 per cent of GSDP.

Fiscal deficit is the difference between a government’s revenue and expenditure when the latter is higher, and revenue deficit occurs when revenue is not enough to cover administrative expenditure.

More revealing are the numbers for FY22 revised estimates and budget estimates, and FY21 actuals and BE. Data available with PRS India shows that FY22 RE borrowings jumped up by a whopping 92 per cent over FY22 BE, while revenue rose only 4 per cent, as a debilitating second wave hampered economic activity.

The fiscal deficit for FY22 was 5.14 per cent of GSDP compared with budget target of 3.93 per cent, while revenue deficit was 2.98 per cent compared with a target of 1.98 per cent.

For FY21, when the nationwide lockdown took place, borrowings more than doubled what was budgeted, while net revenues came in lower than budgeted targets.

The much higher than budgeted borrowings came on the back of centre allowing states to borrow more than 3 per cent of GSDP, with conditional reforms. But even before the pandemic year, in FY20, Rajasthan’s revenues were lower than budgeted and borrowings slightly exceeded the budget targets.

In FY21, its fiscal deficit was nearly 5.9 per cent of GSDP, while revenue deficit was 4.34 per cent compared with BE of 1.09 per cent. Pre-pandemic, in 2019-20, revenue deficit was 3.64 per cent compared with 2.64 per cent.

One can make an intelligent guess as to whether the revised fiscal deficit, revenue deficit and borrowing numbers will exceed the budget targets or not. Most likely, they will, as GST compensation to states ends from June. This comes on top of a stress on demand and consumption as inflation bites into household income, which in turn will impact revenues.

This means that more and more of the welfare schemes expenditure will be financed through borrowings.

Table: Rajasthan's finances at a glance

.	Total Expenditure	Net Revenue	Borrowings	Fiscal Deficit (% of GSDP)	Revenue Deficit (% of GSDP)
FY20BE	2,32,944

1,88,324 44,683 3.19 2.64 FY20

2,13,491

1,55,804 46,174 3.77 3.64 FY21BE

2,25,731

1,74,187 45,281 2.99 1.09 FY21

2,35,094

1,34,696 89,964 5.86 4.34 FY22BE

2,50,247

1,85,505 61,904 3.93 1.98 FY22RE

3,18,594

1,92,310 1,18,825 5.14 2.98 FY23BE 3,46,183 2,15,256 1,22,819 4.36 1.76

Figures in Rs cr unless specified | Source: prsindia.org