In 2015, Devendra Fadnavis, the first Bharatiya Janata Party (BJP) chief minister Maharashtra has seen, awed everyone in the state by announcing that Foxconn, a leading electronics contract manufacturing company from Taiwan known for producing iPhones, will set up a plant in the state. In 2018, the state government launched a campaign with the name "Magnetic Maharashtra", where the state was personified as a magnet that pulls investments.
In 2019, the project is nowhere to be seen. Instead, the industries minister told the press to “get over it” in 2018, hinting that the chances that it will see the light of day are next to impossible.
Data on the growth in investments in the state echoes the anecdote above, especially if we compare Fadnavis’s term with the preceding five-year tenure of the Congress-Nationalist Congress Party coalition.
The story in numbers
While new investments rose to Rs 10.5 trillion under Fadnavis, from Rs 6.7 trillion under the coalition (56 per cent growth), stalled investments trumped new projects to touch Rs 10.8 trillion under the BJP, from the level of Rs 3.5 trillion under the coalition (200 per cent growth), data from CARE Ratings shows. Looking at it another way, the state’s gross domestic product grew by 68 per cent, faster than investments, suggesting that the growth was not led by investments, but probably by consumption.
Cut to the tangible present, the consumption machine too has malfunctioned. Maharashtra is no exception to the nationwide demand slowdown in the economy. Vehicle sales have contracted sharply in the state, and air traffic growth has slumped too, in a state that constitutes 14 per cent of India’s GDP on its own, and contributes to nearly 40 per cent of the revenue from income taxes.
But all this did not deter Fadnavis, who is being touted as the most powerful leader Maharashtra has ever seen, to import about two dozens of turncoats from rival political parties into the BJP. As a result, the Opposition has been reduced to namesake.
One reason for that could be that the investment slowdown visible in the last few years—especially since demonetisation—may have affected Maharashtra less severely than other states.
Maharashtra's unemployment rate in 2017-18, at 5.2 per cent (for the working age population*), was drastically lower than that of Tamil Nadu and Punjab (above 8 per cent), and reasonably under control when compared to the national average of 6.5 per cent.
Nevertheless, the investment and employment situation was deteriorating, which resulted in reverse migration to the villages, experts have noted. To counter this, Maharashtra initiated the farm loan waiver scheme, and has waived off Rs 22,000 crore from the proposed Rs 34,000 crore by now.
But this, along with other welfare measures and commitments such as the increased salary bill due to 7th Pay Commission awards, has resulted in stress on expenditure. Slowing revenue collection from the goods and services tax (GST) and other sources took Maharashtra from a revenue surplus state in 2017-18 (0.1 per cent of GSDP), to shoulder a massive revenue deficit of 0.7 per cent of GSDP in 2019-20, according to budget estimates.
Subsequently, the fiscal deficit of the state rose from 1 per cent of the GSDP to 2 per cent over the same period.
The revenue deficit has thus eaten up a significant portion of the money that the state is borrowing to balance its fiscal deficit. This means capital expenditure has risen only marginally, from 1.1 per cent of GSDP to 1.3 per cent in two years.
Yet, Maharashtra's debt position remains stable. Debt as a percentage of its GSDP has reduced from 17.9 per cent, to 16.9 per cent (budgeted) this year. Also, due to long-term debt stabilisation, interest outgo has come under further control.
The ratio of interest payments to revenue receipts, which is considered as an important indicator of the interest burden, has reduced from 13.6 per cent in FY18 to 11.2 per cent in FY20 (budgeted). This, however, is slated to rise once the redemption of bonds floated to take over debt of power distribution companies kicks in.
As much as revenue worries disturb the apparent stability in state finances, real indicators shake the growth machinery harder.
The slowdown in investments in the state is also visible in the credit patterns. Though credit growth showed gradual improvement in the quarters after demonetisation, the current financial year is showing a drag.
But more importantly, credit growth in Maharashtra has consistently stayed below the national average in the last two years.
Credit for manufacturing, which closely reflects the investment appetite and job creation potential, has dwindled far worse than overall credit, in comparison to the national average.
Since 2015, while growth in manufacturing credit at the national level has remained in single digits due to the much popularised twin-balance sheet problem, that in Maharashtra has largely remained negative, indicating not a slow growth, but a loss of investment appetite.
The state will elect a new assembly on October 21, and the results would be out on the October 24. Whether Diwali see a continuation of power or not, depends on how people vote. But growth in the state is hardly a Diwali, is what the economic indicators show.
|Growth slows in line with slowdown|
|Year||Real GDP growth||Real growth in per capita income|
|Revenue worries worsen the finances|
|Year||Revenue deficit||Fiscal deficit|
|Liabilities in order, interest burden manageable|
|Year||Debt as % of GSDP||Ratio of Interest payments to revenue receipts|
|Manufacturing credit growth shows loss of investment appetite|
|Sources: Reserve Bank of India, National Statistics Office|