Telangana, AP need to raise spending on key sectors

Ever since Parliament passed the Fiscal Responsibility and Budget Management (FRBM) Act, which prescribes limits for deficits and outstanding liabilities of Centre and States, state governments have largely been conservative spenders, limiting their spending far more effectively than the Union government. This trend seems to be reversing in recent years, with the aggregate fiscal deficit of states rising at a time when the aggregate fiscal deficit of the Union government has been declining.

In 2015, the 14th Finance Commission recommended that states continue to maintain a fiscal deficit at 3% of their GSDP. Over the period between 2012-13 and 2017-18, most states maintained their fiscal deficit within the range recommended by the Finance Commission. States that crossed the recommended limit include Jammu and Kashmir (4.7%), Punjab (5.6%) and Andhra Pradesh (2.8%). 

On the other hand, Madhya Pradesh (1.5%), Maharashtra (1.6%), and Telangana (1.2%) had the lowest fiscal deficit, according to the analysis of ‘State of State Finance Report 2018’ and individual State budget documents.

Usually, at the beginning of a year, the states estimate the total expenditure proposed to be incurred during the year. However, the actual spending may vary from the budget estimates. Between 2011-12 and 2015-16, most of the Indian states missed their spending targets consistently by 7%, implying that the actual spending was lower than the budget estimate.

On average, states spend about 80% of their budget on revenue expenditure and the remaining 20% on capital expenditure. Between 2011 and 2015, states witnessed an underspending of 6% in their revenue expenditure, and 16% in their capital expenditure.

The highest underspending of funds at their disposal was seen over the years in Telangana and Assam. The underspending by Telangana was minus 27% and the neighbouring AP was minus 4%, while it was minus 25% in the case of Assam, noted the report.

The analysis of states underspending among various sectors reveals that rural development witnessed the highest under-spending, followed by irrigation (13%), and welfare of SC/ST/OBCs (13%). On the other hand, states spent 17% more than their budget estimates on energy. This is due to the additional expenditure incurred during 2015-16 to implement the UDAY scheme.

In 2017-18, states are expected to spend 16% of their total expenditure on education. Typically, such expenditure is on schemes such as Sarva Shiksha Abhiyan, construction and maintenance of school buildings, and payment of teacher salaries. Delhi spends the highest on education (25%), while Andhra Pradesh (13.2%) and Telangana have budgeted to spend the lowest (9%). The situation was no better in education where the Telangana State has budgeted to spend mere 8.8%, against the lowest in the country in 2017-18, while Delhi topped with an outlay of 24.9% for the sector.

On health front, the States are expected to spend 4% of their total expenditure in 2017-18. This spending is majorly on payment of salaries to doctors, and construction and maintenance of hospitals. It also includes expenditure on schemes such as the National Health Mission. Delhi has budgeted to spend the highest on health (13%), while Andhra Pradesh (3.4%) and Telangana have expected to spend the lowest (3%). 

As per analysis of the report, states are expected to spend 7% of their total expenditure on agriculture in 2017-18. This includes expenditure on schemes such as the Rashtriya Krishi Vikas Yojana, and those related to crop insurance. Punjab (14%), Uttar Pradesh (12%), and Chhattisgarh (12%) have budgeted to spend the most. While Telangana has budgeted to spend highest (9.7%) on agriculture and Andhra Pradesh has budgeted to spend (7.9%). This shows how Telangana State is giving importance to farming community by providing financial assistance of Rs 8,000 per acre and 24x7 power supply to agriculture pump sets.

In 2017-18, states are expected to have spent 5% of their total expenditure on irrigation. This includes expenditure on the construction and maintenance of the irrigation network, and flood control. Telangana was found to spend the highest percentage of its total expenditure (17.6%) on irrigation in 2017-18 followed by Andhra Pradesh stood second with 8.9%, Odisha (8.8%), Karnataka (8.6%) and Gujarat (6.9%).

On rural development front, the states are expected to spend approximately 6% of their total expenditure on average in 2017-18. This includes expenditure on various rural development programmes (such as those related to sanitation and construction of roads), and implementation of schemes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS). Bihar (14%) has the highest expenditure, followed by West Bengal (10%). While Andhra Pradesh has highest expenditure of (9%) on rural development compared to Telangana expenditure of (4.9%).

States have budgeted to spend 4% of their total expenditure on roads and bridges. This includes expenditure on the construction and maintenance of state highways and district roads. Chhattisgarh (10%), and Odisha (9%) have the highest allocations. Both Telangana (1.9%) and Andhra Pradesh (2.2%) have lowest allocations.

In 2017-18, states are expected to spend 6% of their expenditure on energy. Telangana has budgeted to spend (3.3%), while Andhra Pradesh has budgeted to spend (2.6%).

Telangana was also at the top in implementation of welfare programmes for SCs, STs and Backward Classes, including expenditure on scholarships of students and construction and maintenance of hostels. Telangana is expected to spend 10% followed by Andhra Pradesh (8%), and Karnataka (7%).

Outstanding liabilities refer to debt accumulated from financing the fiscal deficit in the past. Higher liabilities indicate a higher obligation for states to repay loans in the future. Usually the norm for outstanding liabilities is set as 25% of GSDP in a year. In 2016-17, Jammu and Kashmir had the highest liabilities (49% of its GSDP), followed by Uttar Pradesh (36%). On the other hand, Telangana had outstanding liabilities (17%) and Andhra Pradesh has (23%).

However, the report highlighted that there was some improvement in spending in Telangana in 2016-17 as the unspent amount was reduced to Rs 18,000 crore.  At a post-budget presentation press conference, the Finance Minister of Telangana assured that the situation will improve much better in future.