For realistic budgeting

The two Telugu State governments are bracing up for the full budget for the first time after bifurcation of the State. Normally, the governments should prepare the budgets, after a realistic assessment of the economy especially the revenue position in the State. But, of late, the sanctity of the budgeting is sacrificed at the altar of political propaganda. The budget day is a significant news day for the media. Budget estimates receive huge media attention. Media lacks time, space and expertise to critically evaluate how far the budgeted figures have been reflected in the actual accruals. Though, the revised estimates for the previous year and the actual for the completed financial year form part of the budget documents, they remain obscure as the governments announce new schemes with pomp and show.

History is problematic for the ensuing budget. The State is bifurcated. Full data for the successor States is not available yet. New political dispensation has taken over in both the States. But, an analysis of the economic sector in the erstwhile United Andhra Pradesh would provide us with sufficient understanding of the revenue trends at the state level. This would help in proper understanding of the budget estimates of Andhra Pradesh and Telangana to be presented to their respective legislatures next month.

The Comptroller and Auditor General of India (CAG) in its report on the revenue sector for the year ended March 2013 provides a realistic assessment of revenue trends at the state level. Though these trends cannot be appropriated for the two successor states, this analysis certainly provides an inkling of the revenue trends possible in both the States, as the bifurcation is not expected to completely alter the sum total of the fiscal situation prevailing in both the Telugu states.

The quasi-federal character of the Indian polity left States financially not so strong. The States’ taxation powers are limited. Their capacity for resource mobilisation is constrained by the truncated federalism. The fiscal muscle is further constrained by disproportionate burden of public expenditure on the State governments. The radical restructuring of Central transfers to States is still elusive.

The total revenue receipts continue to register an increase, whether or not this increase would match the growing expenditure commitments of States. For instance, the total revenue receipts of the State government (undivided Andhra Pradesh) for the year 2012-13 amounted to Rs 1,03,830.28 crore against Rs 93,553.69 crore for the previous year.

The State governments quite often prepare expenditure estimates, expecting a windfall in transfers from the Central government. The budget of the Andhra Pradesh in the post bifurcation year is a classic example of this trend. But, the Central transfers do not constitute a major share of total revenues available with the State governments. For instance, the State tax and non-tax revenue accounted for 73 per cent of the total revenue in the financial year 2012-13. The balance 27 per cent was received from the Government of India as the State share of the divisible Central taxes and grants-in-aid. This share will increase as the Centre has accepted the 14th Finance Commission’s recommendations to increase the share of the States in the Central taxes by 10 per cent to 42 per cent. However, still the States have to depend primarily on their own resources to meet their budget commitments.

In fact, the State tax revenues can be substantially improved without levying additional taxes on people by improving the tax administration. Efficient tax management measures can substantially raise the revenue. The CAG findings reveal there are many instances of payment of taxes at lower rates, resulting in evasion of tax. Incorrect computation of turnovers, application of incorrect rates of tax result in short levy of taxes, incorrect levy of concessional rate of tax, incorrect exemption also result in loss of revenue.

The State tax revenue realisation is adversely affected by many factors. The CAG findings revealed many such factors. They include non/short-levy, non/short-realisation, underassessment/loss of revenue, incorrect exemption, concealment/suppression of turnover, application of incorrect rate of tax, incorrect computation etc.

The tax department needs to improve internal control system and initiate necessary corrective action to recover non/short-levy of taxes etc. VAT constituted 64 and 68 per cent of the state own tax receipts during 2008-09 to 2012-13 in the undivided State. However, the collections have constantly fallen short of the budget estimates. This is also due to the ambitious targets often shown to artificially increase the total size of the State budget.

The contribution of State excise duty in total tax receipts has decreased from 17.24 per cent to 15.25 per cent in 2012-13. Now, it has to be seen whether the revenue from excise duty has increased or not in both the States. Excise receipts constituted between 15 and 18 per cent of state’s own total receipts during 2008-09 to 2012-13, during which period the receipts grew at a compounded average annual growth rate (CAGR) of almost 12 per cent. However, the total tax receipts of the State increased by 79.49 per cent during this period, and increase in the receipts from the state excise duty was recorded as 58.70 per cent. This shows that excise revenue is increasing at a lesser pace as compared to the total tax revenues till the bifurcation of the state for which the latest data is available. The trends in both Telugu states have to be examined now.

In 2012 -13, the collection of land revenue decreased by 56.05 per cent over the previous year. Several measures need to be taken to address the situation. They can include the following. Monitoring mechanism is to be prescribed at RDO level through periodic returns from Tahsildar in respect of new layouts, industrial, mining activity taken up in their jurisdiction. Co-ordination is to be ensured between land revenue and other departments.

In 2012-13, collection of taxes from motor vehicles increased by 12.40 per cent over previous year. There was an increasing trend in receipts from taxes on motor vehicles from 2008-09 to 2012-13 matching trend in total tax receipts of state. Revenue contribution from stamp duty and registration fee to the total own tax receipts of the state has been at the same level during 2008-09 to 2012-13 barring in one year.

The revenue estimates to be made in the budgets of the two states should be viewed against this overall trend which was prevalent in the undivided state. This would provide some understanding on the nature of the budget estimates though these figures can vary in the two separate states.

By: Prof K Nageshwar