UP's lesser-known story

Though little attention is paid to UP govt's fiscal performance, the achievement has been quite remarkable

Uttar Pradesh (UP) Chief Minister Yogi Adityanath has often been in the news for his Hindutva politics. But little attention has been paid to his government’s fiscal performance. Even his government’s latest Budget, the third in his tenure so far, made newspaper headlines more for the Rs 400 crore he allocated for building cow shelters and less for keeping a tight leash on the state’s finances.

This could be because details of state Budgets are not immediately available in easy formats, comparable with past years. After several months of their presentation, the Reserve Bank of India brings out its annual publication on state Budgets. Only then can a proper analysis of state Budgets be made after analysing the revenue and expenditure trends over the previous few years. A report from PRS Legislative Research, compiling the Budgets of eight states presented so far for 2019-20, fills the gap considerably. 

What it shows about the last three UP Budgets is quite significantly different from the popular narrative about the Yogi Adityanath government. The UP government’s fiscal consolidation achievement has been quite remarkable. Inheriting a fiscal deficit of 4.5 per cent of gross state domestic product (GSDP) in 2016-17, the last year of the Akhilesh Yadav government, Yogi Adityanath halved it to 2.02 per cent in its first year —  2017-18. Remember that the numbers for both the years are actuals and hence have passed audit scrutiny and are unlikely to be revised. 

In its second Budget, for 2018-19, the state government’s fiscal deficit, as per the revised numbers, widened a bit to 2.97 per cent of GSDP. And for the 2019-20 Budget that UP Finance Minister Rajesh Agarwal presented earlier this month, the fiscal deficit is projected to be reined in at the same figure of 2.97 per cent. The Finance Commission-mandated deficit cap for the states is 3 per cent of GSDP and UP is now among the few states like Gujarat, West Bengal and Karnataka, which are below that level. 

What about the revenue balance or the gap between the state’s revenue expenditure and revenue receipts? Well, even in this area, UP is among a handful of states that have maintained a surplus. The revenue surplus came down a little to 0.91 per cent of GSDP in 2017-18, from 1.6 per cent in 2016-17. But in 2018-19, it scaled up again at 3.2 per cent, only to project a decline to a surplus of 1.76 per cent next year. 

This has been possible largely because the state has seen robust growth in its own tax revenues. In the first year of the Adityanath regime, the state’s own tax revenues increased by 8 per cent to Rs 97,393 crore in 2017-18. Then, a dramatic surge of 38 per cent in 2018-19 saw the state government’s own tax revenues go up to Rs 1.34 trillion. But as apparently puzzling as the surge in 2018-19 is the plateauing of the own tax revenue growth projected in 2019-20 — an increase of only 4 per cent to Rs 1.4 trillion. 

Could the surge be a reflection of the first full-year’s impact of the goods and services tax (GST) on UP’s own tax revenues? And now that the GST rates have been rationalised and reduced, along with the grant of fresh exemptions to various sectors, the state revenues on account of the GST would grow at a much slower pace. In 2018-19, GST revenues for UP were estimated at Rs 1.06 trillion and these would go up marginally by 3 per cent in 2019-20. This will clearly be a challenge for the UP government in the coming years, if indeed the flattening out of growth in own tax revenues is due to a slowing down in its GST collections. 

Another area in the three Budgets of the Adityanath government that deserves attention is its capital expenditure. It rose by 110 per cent in 2018-19 to Rs 1.17 trillion, from Rs 55,599 crore in the previous year. For 2019-20, the capital expenditure saw a marginal decline and was projected at around Rs 1.16 trillion. In effect, the share of capital expenditure in the UP government’s total expenditure increased from 17 per cent in 2017-18 to 26 per cent in 2018-19 and will stabilise at a slightly lower level of 24 per cent in 2019-20. To earmark about a fourth of the state’s total expenditure for capital spending is an achievement that not many states can take credit for. 

 The PRS Legislative Research has calculated the capital outlay for the state also and has defined it as a component of the capital expenditure that is directly used for creating assets. Such capital outlay, too, more than doubled to Rs 88,528 crore in 2018-19, from Rs 39,088 crore. For 2019-20, capital outlay was projected a little lower at Rs 77,641 crore. In other words, the asset-creation function of capital spending has not been ignored in the way the UP government has structured its capital expenditure in the last three years. 

UP is India’s most populous state, with an estimated GSDP size of Rs 14.76 trillion that ranks it among the top five states in the country. It is also one of India’s economically backward states. But if the state follows fiscal prudence and spends more on creating assets, it must be doing at least a few things right as far as fiscal governance is concerned. Isn’t it then time for economic analysts to turn their focus on UP’s fiscal performance to gain a better understanding of the prospects of economic growth in the state that will send the largest number of legislators to the Lok Sabha coming May?