MP captains tight ship: Navigates freebie-fiscal stability course

The Shivraj Singh Chouhan government faces a tide of Opposition criticism over rising debt

The Shivraj Singh Chouhan government has faced criticism from the Opposition Congress for increasing the debt level in Madhya Pradesh (MP). While the government debt of the state has risen over the past four years, starting with the Covid-impacted year 2020–21, the situation is not worse than during the second term of the Congress government led by Digvijaya Singh or the first Bharatiya Janata Party (BJP) government in the 21st century.

The government debt approached 30 per cent of the gross state domestic product (GSDP) at the end of 2020–21, much higher than the 22.5 per cent left by the Congress government led by Kamal Nath as of March 31 of the previous year. However, the two years cannot be compared, as 2020–21, as mentioned earlier, was hit by the first wave of Covid, resulting in lockdowns and increased government expenditures. The debt remained elevated at 27 per cent the following year and is projected to rise further to 29.3 per cent as of March 31, 2022–23 (Revised Estimates) and 30.4 per cent at the end of the current financial year (Budget Estimates).

However, if we consider the average of the four years of the current Chouhan government, the debt-to-GSDP ratio stands at 29.1 per cent of GSDP, significantly higher than the previous two governments led by Chouhan himself. Nevertheless, the situation was much worse during the second term of the Digvijaya Singh government and the succeeding BJP government, with average debt-GSDP ratios of 35.4 per cent and 36.1 per cent, respectively.

A study of the state’s fiscal parameters by the Reserve Bank of India last year included MP among the 10 states that were fiscally vulnerable due to their high debt levels. However, MP was not among the highly stressed states, which included Bihar, Kerala, Punjab, Rajasthan, and West Bengal. The other four vulnerable states were Andhra Pradesh, Haryana, Jharkhand, and Uttar Pradesh.

Despite the state raising high debts in recent years, it has maintained its revenue surplus position since 2004–05, the first full year of the BJP government, except for a couple of years in between.

Notable exceptions include both the Congress rule of Kamal Nath and the first year of the present Chouhan government. However, the state had an average revenue deficit of 3.2 per cent of its GSDP during the second term of the Digvijaya Singh government.

The revenue surplus position implies that the state may be incurring debt for capital expenditure, most portion of which is used for generating assets (capital outlays).

This situation may not be as financially problematic as it seems.

However, this revenue surplus position of the government may be affected by the freebies announced by the government, potentially further increasing the size of the government debt.

For example, the government has allocated Rs 8,000 crore for the Mukhyamantri Ladli Behna Yojana, a new scheme for women’s welfare in the state. However, starting from October, Rs 1,200 will be given to women aged at least 23 years, compared to Rs 1,000 at present.

One can criticise the economic aspect of the scheme, but the state has a responsibility to empower women.

The sex ratio in the state was still negative, at 970 females per 1,000 males during 2020–21, compared to 1,020 at the all-India level, according to the National Family Health Survey. The survey also revealed that 23 per cent of women had a lower body mass index than required during the year. Additionally, 54.7 per cent of women between the ages of 15 and 49 suffered from anaemia.

While there are other freebies being offered or promised by political parties, which may be subject to debate, the state provides a subsidised gas cylinder at Rs 450 to every eligible female beneficiary per month, starting in September this year.

Similarly, the Congress has also promised subsidised gas cylinders, albeit at a slightly higher rate of Rs 500, a monthly stipend of Rs 1,500 to women in the state, free power for the first 100 units and a 50 per cent discount on bills for the next 200 units, restoration of the old pension scheme, and farm debt waiver.

Although the state had higher retail inflation than the national average over the previous five years, the situation has changed during the current financial year. It decreased to just 3.67 per cent in September this year, compared to the national average of 5.02 per cent, after experiencing bouts of over 6 per cent inflation in the previous two months in line with the all-India level. However, the inflation rate in food and beverages remained higher at 7.36 per cent in the state, compared to the national average of 6.3 per cent in September.

Per capita income in the state has consistently been below the national average for at least 24 years. However, it has narrowed the gap with the all-India level in recent years.

The state’s per capita income constituted 70.5 per cent of the national average during the second term of the Digvijaya Singh government, but it dropped to 61.2 per cent during the succeeding BJP government. It then increased slightly to 62.5 per cent during the second term and sharply to 69.46 per cent during the third tenure. It further rose to 77 per cent during the Kamal Nath government and further to 81.7 per cent during the next three years of the Chouhan government.