State Finances in Haryana- Manju Dalal

8/10/2019 State Finances in Haryana- Manju Dalal

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1. Introduction

"aryana is one o# the prosperous and smallest states in $ndia having %%&%' S(. K.M o#

geographical area and )!.*+ Millions o# population as per )!!' Census. $ts per capita income was

,s. +'%-* in )!!/!* which has 0een highest among all other states o# $ndia e1cept Goa 2,s.

-!&'3 in )!!+/!'. ,evenue 4e#icit 2,43 5iscal 4e#icit 2543 Primary 4e#icit 2P43 share o# ,4

in 54 2,46543 and $nterest Payments 2$P3 are very important 7ey indicators)

to e1amine the #iscaltrends and soundness o# state #inances. Soundness o# #inances o# any government depends on the

#ollowing #actors8

/ Government should generate enough resources to meet their own socio/ economic development

and needs. 5or this there should 0e at least 0alance in the revenue account o# the government.

/ 9he share o# the de0t in the Gross State 4omestic Product 2GS4P36 Gross 4omestic Product

2G4P3 should 0e at a lower level #or which #iscal de#icit should 0e minimum.

/ 9he 0orrowings #rom various sources should 0e made only #or productive purpose. So that

repayment capacity o# the government may increase or share o# ,evenue 4e#icit 2,43 in 5iscal

4e#icit 2543 should 0e :ero or at a very low level.

/ 5iscal 4e#icit should 0e due to e1cess o# developmental e1penditure not due to e1cess o# non

developmental #or this di##erence 0etween 54 and P4 should 0e minimum.

9he present study e1amined the #iscal trends o# state #inances in "aryana and tries to #ind out

those reasons which have 0een6are responsi0le #or the continuous increase in interest payments as a

percentage o# GS4P in #orm o# Primary Surplus inspite o# revenue surplus and #iscal surplus

especially a#ter year )!!! to )!!/!* 2actual #igures were availa0le only to year )!!/!*3. 9he

o0;ective o# the study is also to #ind out how state government could achieve ,evenue Surpluses and

lower level o# 5iscal 4e#icit in the economy and to #ind other wea7er areas also where government

should ta7e measures to strengthen the #inancial position and increased the wel#are o# the state

economy. 9he whole study is 0ased on secondary data which have 0een collected #rom the #ollowing

sources8

'


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2i3 ,B$ < Study o# State 5inances Various $ssues 2ii3 ,eport o# Comptroller and ee7ly namely ?State 4omestic Product o# States in $ndia@.

Simple ratio method has 0een used to measure percentage share o# various varia0les. Simple

regression method has 0een used to estimated 0uoyancy o# various 7inds o# stateAs own ta1es #or two

di##erent study periods 2#rom '-*+/* to '--/-+ #rom '--+/- to )!!/!*3. 9he #ollowing

e(uation has 0een used to estimate 0uoyancy8

Log y = a + b log X

D 9a1 ,evenue

F =et State 4omestic Product at Current Prices

B Coe##icient o# F will give 0uoyancy o# ta1 structure.

9he present study has 0een divided into #ive sections. 9he #irst section is introduction which

provides a 0rie# pro#ile o# "aryana o0;ectives o# the study data sources and methodology. 9he

second section discuss a0out the #iscal trends o# "aryana. 9he third and #ourth section discusses

a0out revenue and e1penditure management o# the "aryana state respectively. 9he #i#th section

provides the summary conclusion and suggestions.

2. Fiscal rends o! Haryana

9he trends o# ,evenue 4e#icit 5iscal 4e#icit Share o# ,evenue 4e#icit in #iscal 4e#icit andPrimary 4e#icits o# "aryana #rom year '-*!/*' to )!!/!* have 0een shown in 9a0le'.

9a0le ' shows that till year '-*/** there was surplus in the revenue account o# "aryana

state government and lower level o# #iscal de#icit was due to e1cess o# capital e1penditure which

implies that state was using these revenue surpluses and 0orrowings #or the productive purposes.

Continuously declining #iscal de#icit was a sym0ol o# soundness o# state #inances. 9ill year '-*+/*

ma;or part o# #iscal de#icit was #inanced 0y revenue surpluses. $n year '-*+/* -.** percent o#

#iscal de#icit was #inanced 0y revenue surpluses. 9ill year '-*/** when there was surplus in

revenue account and government was using these surpluses #or the productive purpose the #igure o#

primary de#icit was declining and di##erence 0etween #iscal de#icit and primary de#icit was

increasing continuously which implies increasing interest payments. $n year '-*/** di##erence o#

#iscal and primary de#icit increased to '.* percent o# GS4P whereas #iscal de#icit was ).)- percent

o# GS4P. 4uring '-*!/*' to '-*/** in spite o# revenue surpluses and decreasing #iscal de#icit

)


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interest payments as a percentage o# GS4P increased continuously and state could not reduce or

control its e1penditure on interest payments. '-**/*- was the year in which revenue de#icits

appeared #or the #irst time. 4uring '-**/*- to '--)/-& there was de#icit in revenue account 0ut it

always has 0een 0elow ' percent o# GS4P and #iscal de#icit 0elow & percent o# GS4P. 4uring this

period primary de#icit also declined continuously which implies that interest payments as a

percentage o# GS4P more or less increased continuously.


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$nterest payments as a percentage o# GS4P have 0een shown in column + o# 9a0le '. 9he

interest payment o# state increased continuously and in year )!!)/!& it increased to & percent o#

GS4P. So it is necessary to investigate those #actors also which are or have 0een responsi0le #or the

high level o# interest payments. 9here are many reasons which have 0een6are responsi0le #or the

high level o# interest payments8/

In"est#ent and $eturns

Government invests in pu0lic sector underta7ings li7e statutory corporations oint stoc7

companies and co/operatives. GovernmentAs return on these investments has 0een meager less than

!.) percent where as rate o# interest on government 0orrowings which used #or investment has 0een

more than percent. $n year )!!/!+ investment o# government in these companies increased 0y

)'. percent where as rate o# return decreased 0y &' percent. 9he rate o# return has 0een low 0ecause

there have 0een losses in most o# the companies and pro#its o# other companies has 0een eaten 0y

sic7 unites.


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&ature o! 'a(ital $ecei(ts

Central Government issue special securities o# =ational Small Saving 5unds 2=SS53 on

0ehal# o# states and receives all amount invested in these securities. 9ill year '---/!! loan #rom this

=SS5 to the state government was considered as a loan #rom central government. Central

government issue loan to the state government #rom the amount collected #rom securities issued to

=SS5 0y that particular state as per the re(uirement o# the state on that rate o# interest on which

central government was giving other loans to the state governments 0ut #rom year '---/!! however

they considered loan #rom =SS5 as an internal de0t 0ut classi#ied separately as a special securities

issues to =SS5 and the condition imposed 0y the central government on state governments is that

that every state has to ta7e whole amount o# =SS5 which centre collected #rom that particular state

as a loan. =ot only this state has also to 0ear whole 0urden o# interest on these securities. 9he

average interest rate on mar7et 0orrowings is .% percent per annum whereas interest rate on small

saving is -. percent. Story 0egins now a#ter year )!!! de#icit in the revenue account o# "aryana

has 0een negligi0le and revenue de#icit converted into surplus also and #iscal de#icit declined to !.)

percent o# GS4P in )!!/!+ and #iscal de#icit converted into surplus in )!!+/! due to increase in

capital receipts 0y securities issued to =SS5 2one can say that this is compulsory capital receipt3

there is a large cash surplus in the treasury o# "aryana. ,B$ invests these cash surpluses in the '%

days intermediate treasury 0ills o# the center and center invest in the securities o# ,B$. ,B$ gives

more than percent rate o# interest to the center whereas center is giving percent rate o# interestper annum to the states. $n this process the whole 0ene#it is going to center only and additional

interest 0urden is #alling on the state governments. "aryana state government is getting more than !

percent o# $nternal 4e0t #rom =SS5 e1cept last two years i.e. )!!/!* and )!!*/!- and has a large

cash surpluses in treasury which state is investing in '% day intermediate 9reasury 0ill o# center

government at the rate o# percent per annum and 0earing additional interest 0urden. 9his situation

re#lects clear #rom 9a0le %.

State)s Debt Stoc*

StateAs de0t stoc7 includes state de0t lia0ility which state ta7es #or its own needs and stateAs

outstanding guarantees #or which state give guarantee #or loan ta7en 0y others. StateAs 4e0t stoc7

has 0een shown in 9a0le . State is lia0le to pay interest only on stateAs de0t lia0ility not on stateAs

outstanding guarantees 0ut on de#ault it is stateAs responsi0ility to pay guaranteed loan with interest.


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9here#ore state government has constituted a Guarantee ,edemption 5und to meet the payment

o0ligation o# state guarantee on de#ault and started to charge ) percent o# the loan amount as a

guarantee #ee that will go to the Guarantee ,edemption 5und #rom )!!&/!%. 9here#ore stateAs

outstanding guarantee reduced a#ter year )!!)/!& 0ut stateAs de0t lia0ility increased #rom )' percent

o# GS4P in '--/-* to ). percent o# GS4P in )!!)/!&.


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sale ta1 due to which revenue #rom this head increased #rom %.+) o# GS4P in )!!&/!% to .%

percent and +.!' percent o# GS4P in )!!%/! and )!!/!+ respectively 0ut a#ter year )!!/!+

inspite o# these e##orts ratio o# sale ta1 in GS4P again decreased to .)& percent. $n addition o# sale

ta1 share o# all other ta1es in GS4P also declined a#ter year )!!/!+.

Buoyancy and Elasticity o# ta1es could 0e ta7en as indicators o# over all per#ormance o# ta1

structure o# the state. 9a1 0uoyancy is generally de#ined as the total percentage change in ta1

revenue including discretionary changes associated with a given percentage change in income.

More appropriately ta1 0uoyancy can 0e understood as the capacity o# a ta1 to increase the #low o#

income to the e1che(uer including the increase due to enhancement o# rates enlargement o# 0ase or

multiplication o# levies. hereas elasticity may 0e de#ined as the total

percentage change in ta1 revenue only due to change in 0ase i.e. change in income only. By

di##erence 0etween ta1 0uoyancy and ta1 elasticity one can 7now that to which e1tent government

has 0een active to raise its revenue receipts. $ncrease in Buoyancies and Elasticities during di##erent

periods represents governmentAs role during di##erent periods whereas comparison o# elasticities and

0uoyancies in the same period shows the governmentAs e##orts to raise its revenue receipts during the

same period. $# di##erence 0etween 0uoyancy and elasticity o# ta1es is high it means government

played very important role in policy ma7ing and in implementation o# those policies to raise its ta1

revenue receipts. So greater the di##erence 0etween 0uoyancy and elasticity 0etter the per#ormanceo# the government and lower the di##erence lower the per#ormance.

5rom the analysis o# 0uoyancy and elasticity o# ta1es #rom 9a0le * it is clear that during mid

*!s to mid -!s government made e##orts to raise its ta1 receipts only #or Sale 9a1 and during mid

-!s to mid )!!!s only #or Ither 9a1es. 5or all other ta1es 0uoyancies and elasticities have 0een

same which implies that these ta1es have 0een untouched and government did nothing to raise its ta1

revenue receipts #rom these sources.


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revenue receipts o# the state government increased continuously. $n )!!/!+ total revenue receipts

increased to '%.&% percent o# GS4P 0ut declined again to '&.&- percent in )!!/!*. So it is clear

that ta1 non ta1 and total revenue receipts didnAt #ollowed any particular trend.

-. /(enditure Manage#ent

,evenue e1penditure o# the state government has 0een shown in 9a0le -. State GovernmentAs

revenue e1penditure as a proportion o# GS4P in "aryana till year '--%/- has 0een 0elow '

percent 0ut in year '--/-+ it increased to '* percent o# GS4P due to increase in e1penditure on

General Services only 2which is non developmental e1penditure3. $n year )!!'/!) revenue

e1penditure reached to '%.)% percent o# GS4P.


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o# GS4P 0ut has 0een lower in comparison o# e1penditure during '-*!/*' to )!!'/!). So trends o#

revenue as well as capital e1penditure on social and economic services have not 0een satis#actory

0ecause with the improvement o# state #inances e1penditure on social and economic services didnAt

increase. >hereas 0ene#it o# improved state #inances may 0e reach to the common man only through

increasing e1penditure on social and economic services.

hereas revenue e1penditure increased continuously #rom !.!' percent o#

GS4P in '-*!/*' to '.% in )!!/!*.

$n most o# the states wea7 #inancial condition o# State Electricity Boards has 0eenresponsi0le #or the deterioration o# state #inances. Losses o# State Electricity Board increased or are

increasing continuously there#ore 0urden o# these losses #ell or is #alling on the state governments in

#orm o# su0sidies. 5rom year )!!'/!* +' to - o# total su0sidies went to SEBs only in

"aryana which has 0een shown in 9a0le ''.


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$n spite o# the a0ove re#orms su0sidies to the power sector has 0een very large due to which

0urden #ell or is #alling on the states in the #orm o# su0sides on which state government spending

ma;or part o# its revenue receipts e1penditure and GS4P which has 0een shown in 9a0le ').

Losses o# Power Sector to much e1tent have 0een responsi0le #or the revenue de#icits in

recent years. $n the a0sence o# these losses there could have 0een revenue surpluses.

/(enditure on Salary and ensions

E1penditure on salary and pension has 0een shown in 9a0le '&. $n year '--/-* e1penditure

on salary and pension was &.% &'.% and .% percent o# total revenue receipts total revenue

e1penditure and GS4P respectively which increased in '--*/-- due to implementation o# thPay

Commission to -.!& %+.!* and .% percent respectively.


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=ow come to the e1penditure on salary and pensions.


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untouched 2di##erence 0etween 0uoyancy and elasticity #or all ta1es e1cept sale ta1 and other ta1es

has 0een nil3 which is a sym0ol o# governmentAs inactiveness #or raising its ta1 revenue receipts

#rom the availa0le sources.

able 13 Su##ary o! Fiscal Indicators o! Haryana as a (ercentage o! %SD

Dears ,evenue4e#icits

5iscal4e#icits

age Share

o# ,4 in54

Primary4e#icit

$nterestPayments

'-*!/*' /'.+) &.! /).+* ).! '.!)

*'/*) /'.) ).%' /%-. '.&& '.!*

*)/*& /.-& &.- /)&. ).*& '.!

*&/*% /'.%% ).% /+. '.%' '.'&

*%/* /.' %.!% /').+' ).+% '.%

*/*+ /'. &.) /%+.'& '.* '.&*

*+/* /).'- ).)- /-.** . '.*

*/** /.) ).- /.* .* '.-**/*- .!) ).+* .++ '.'- '.%-

*-/-! .- &.) )%.' '. '.)

-!/-' .'& ).+) .'' .-* '.+%

-'/-) .'* ).'& *.+ .& '.*&

-)/-& .!' ).& .&* .% '.*&

-&/-% /!.&+ ).' /'+. .)+ '.-'

-%/- '.%- ).!% &.! .'* '.*+

-/-+ '.'+ &.&' &.' ).% .*+

-+/- ).!) &.!* +.& '.!* ).!!

-/-* '.*+ ).-) +&.* .* ).')

-*/-- &.& .'& +*. ).* ).)*

--/!! ).%) %.&+ .* '.* ).*

!!/!' '.' %.') )+.*) '.%' ).'

!'/!) '.% %.) &*. '.*% ).+*

!)/!& '.!% ).)) %+. /!.' ).-&

!&/!% !.&& &.+ -.&% !.-- ).

!%/! !.)* '.)- )'.&- /'.' ).&-

!/!+ /'.'% !.) /'.' '.-*

!+/! /'.)+ /!.-& '&%.*+ /).) '.-

!/!* /'.' !.*+ /!.& '.-

Source8 ,B$ < Study o# State 5inances Various $ssues.Surplus 2/364e#icit 2N3

'&


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able 23 In"est#ent and $eturn on ublic Sector 4nderta*ings

Dear

$nvestment

2,s. $n Cr.3 ,eturn ,ate o# ,eturn

,ate o# $nterest on

Government Borrowings

!!/!' )*%% '.*' .!+ ''.)+

!'/!) )-!+ .% .!' -.!)

!)/!& &!+ '.& .!+ .!*

!&/!% '+-! %.'' !.)% -.''!%/! '*+' ).& !.'& *.%-

!/!+ ))+' '.-) !.!- *.-

!+/! &!* .+) !.'* -.)

!/!* &-** +.! !.' .%&

Source8 C


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!&/!% +'!&.' '!.*'

2).-*3

+&)

O&.!!

!%/! %'*.&* )')*.'

2!.-*3

''

O&.-

!/!+ &)'*.) '-+.+%

2%-.+'3

&*-%

O)%&.*-

!+/! '--!.)* ''.-&

2-.!*3

)*-*

O'%.+'

!/!* 2,.E3 &.- ''.2)&.)%3

*%O''%.'

!*/!- 2B.E3 &-&).* &&+.)*2*.3

=.-?

9otal 9a1 on Commodities and

Services !.-% !.-&* .> '.%+' '.%+ .1

Land ,evenue !.)%& !.)%& '.** '.**

Stamp 4uty and ,egistration 5ee '.!) '.!) '.&)- '.&)-

9otal ta1 #rom property and capital '.!'' '.!'' '.&&* '.&&*

9otal Iwn 9a1es !.-) !.-% . '.%% '.%%% .1

Source8 Calculated

'-


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9a0le -8$e"enue /(enditure o! Haryana State %o"ern#ent

$s. In 'r.

:as a ;age o! %SD

Documents

State Finances in Haryana- Manju Dalal