How Captain Abhimanyu Has Anchored Haryana’s Economy In Last Four Years

Haryana Finance Minister Captain Abhimanyu Sindhu presented his fourth budget on Friday (9 March). This was also the fourth budget of the Bharatiya Janata Party (BJP) government which had won power in 2014 in the state for the first time, thanks to popularity of Prime Minister Narendra Modi.

Captain Abhimanyu, who is arguably the most talented administrator in the state cabinet, was a leading contender for the Chief Minister’s post but lost out to Manohar Lal Khattar whose personal relationship with PM Modi, roots in Sangh and being a non-Jat worked in his favour. The party placated Abhimanyu with the second-most powerful post of Finance Minister. He is Deputy Chief Minister in all but name. Despite his many blunders, if CM Khattar hasn’t been replaced with Abhimanyu, it’s primarily because the BJP in Haryana has invested too much in its anti-Jat politics and making a u-turn now will be akin to committing political suicide.

After assuming office, Captain Abhimanyu set in process an important exercise that many BJP supporters or even many leaders now wish Modi government at the Centre had carried out, i.e. to come out with a white paper on economy. Since no proper diagnosis was done at the Centre, full extent of damage done by the previous dispensation didn’t come out in public view and many time bombs like the Non-Performing Assets (NPA) mess couldn’t be detected on time. Result? The BJP is paying for Congress’ sins.

The White Paper by Haryana’s Finance Minister took note of various positive facets of the state economy but it also identified some major fundamental weaknesses.

Before we discuss that, let’s take a look at various key economic indicators and how they have moved in the last five years as they will be good pointers to the general state of economy.

The real GSDP (Gross State Domestic Product) growth in 2018-19 is projected to be 8 per cent, same as the current fiscal year, higher than the national average of 6.6 per cent. This will take the GSDP to Rs 5.15 lakh crore at constant prices (2011-12 series) and Rs 6.87 lakh crore at current prices. The per capita income is projected to increase to Rs 1.64 lakh at constant prices.

Revenue deficit which was at 1.9 of GSDP is expected to fall to 1.2 percentage level. Fiscal deficit is expected to be at 2.82 per cent of GSDP, showing marginal improvement from 2014-15 when it stood at 2.88 per cent.

The Debt to GSDP ratio has however worsened from 16.23 per cent in 2014-15 to 23.44 per cent in 2018-19 (Budget Estimates - BE) but a substantial chunk of this jump is due to the government transferring debt of the state’s power distribution companies to itself under central government’s UDAY scheme. This, however, is still below the stipulated limit of 25 per cent prescribed by the Fourteenth Finance Commission for the States.

Total revenue receipts as percentage of GSDP have also improved from 9.33 per cent in 2014-15 to 11.52 per cent in 2017-18 (Revised Estimates) and is projected to be 11.18 per cent in 2018-19 (BE). This is a healthy development.

Overall, from the above indicators, it is clear that Abhimanyu has handled finances of the state in a deft manner. Now, let’s turn our attention to seven fundamental weaknesses plaguing the economy that he had elaborated in the white paper in 2015.

First, the state of composition of revenue receipts was worrying. In 10 years of Congress rule, the share of state’s own revenue receipts in total revenue had fallen by more than 10 percentage points to less than 78 per cent while the central share in receipts doubled to 22.4 per cent by 2013-14. This was chiefly because of doubling of grants-in-aid from the centre during this period.

After four budgets of the BJP, the situation today is much better. Though, central share has only marginally reduced from 22.4 per cent in 2013-14 to 21.4 per cent, its composition is drastically different. Grant-in-Aid from centre has remained at Rs 7,000 crore a year, same as it was four years ago but the central share in taxes has gone up from paltry Rs 4,000 crore to over Rs 9,000 crore, thanks to new devolution formula.

Additionally, the state’s own tax revenue to GSDP ratio has increased from 9.28 per cent in 2014-15 to 11.32 per cent in 2018-19 (BE). This shows that Abhimanyu has helped steer the state’s economy from over-dependence on central grants by improving state’s tax buoyancy.

Other avenues of generating revenue from within the state have also improved. Take mining for instance. Mining of sand, boulder and gravel was halted since 2010 due to court cases which arose out of corruption allegations and policies that favoured big operators. The other contentious issues was of environmental clearances. But in 2015-16, this sector got a new lease of life. The government auctioned small blocks of mines. This broke the monopoly of big operators. Today 57 mines are operational and this sector is projected to deliver this year tax revenue of Rs 800 crore. In addition, due to resuming of mining in the state, people are also getting construction materials at lower rates than before.

Second problem was highly skewed capital:revenue expenditure in favour of the latter. In 2013-14, over 90 per cent of the budget allocation went to revenue expenditure and less than 10 per cent to capital expenditure. Most of the borrowings by the government was going in financing its consumption needs and very little in public investment. Captain Abhimanyu had announced his plan to double the capital expenditure. He has certainly made progress. From 9.2 per cent in 2014-15 (BE), share of capital expenditure has jumped to 15.2 per cent in 2018-19 (BE). He should strive to take it to 20 per cent next year.

Third issue was that of staggering increase in government’s committed liabilities such as salaries, pensions and interest on borrowings which have to be paid every year. Between 2004-05 and 2013-14 under Congress, salaries jumped by 350 per cent, pensions by 400 per cent and total committed liabilities more than trebled to Rs 22,462 crore accounting for more than half of total revenue expenditure.

In 2014-15, salaries and pensions together accounted for 43.87 per cent of total revenue receipts. In 2018-19 (BE), it has fallen to 37.56 per cent. In the white paper, Abhimanyu had vowed to replace ‘parastatal finances resulting from populism’ with a ‘long term vision based on the principles of sound economics.’ He has certainly made a dent.

Fourth, the agriculture sector is heavily tilted towards food crops and there is little diversification without which it has become difficult to increase productivity and raise incomes of farmers with continuous decline in farm sizes. To address this, Abhimanyu announced his government’s intention to double the area under horticulture from the present 7.5 per cent to 15 per cent and triple the horticulture production by 2030. Apart from this, the government will push for production of high-value vegetables in 13 districts that fall in National Capital Region. If marketed right, farmers in these areas can get great prices by selling in the ever expanding capital region market. In 2018-19 budget, Abhimanyu has given a significant 50 per cent hike in allocation to agriculture and allied sector.

Fifth and Sixth are decline in secondary sector, particularly industries, and regional disparities in development (only six out of 22 districts have per capita income higher than the state’s average). The government has come up with a new industrial policy, increased outlays for agriculture, irrigation, conducted ‘Haryana Happening’ summit to attract investment. But successes on these fronts are modest as far as outcomes are concerned. Certainly, Haryana has improved its ‘Ease of Doing Business’ ranking from 14 in 2015 to now number one in implementing Business Reform Action Plan prepared by the Centre. But, we will have to wait for some time before we can pass a conclusive judgment on the government’s efforts.

Seventh problem was mounting losses of the state public sector enterprises. However, since 2013-14, four PSEs have turned profitable. The total losses have been reduced to the tune of around Rs 400 crore. Those which were making profits have improved their margins by over Rs 250 crore. This is commendable achievement but needs further improvement as the overall losses stand above Rs 3,000 crore.

Apart from fixing and working on these pertinent issues plaguing the economy, Abhimanyu has created a unique place for himself by displaying his ability to implement out of the box solutions in the last four years. These are:

a) Setting up a first-of-its kind Swarna Jayanti Haryana Institute for Fiscal Management in India. It will give required training to the state-level officials in the areas of public finance policy, financial management and financial administration through various research programmes. Last year, in an interview to Swarajya, Abhimanyu had explained the thinking behind this idea. “When we took office, there was very limited information or research available on how to best manage the state’s finances and how to improve the overall financial health of the economy. We needed an institute that could guide us in formulating economic models keeping in mind the conditions unique or peculiar to our state,” he had said.

b) Decision to set up a non-banking financial company, Haryana State Financial Services Ltd.,to act as an in-house treasury manager for efficient management of surplus funds of the state entities. It will also help the government in debt and borrowing management.

c) Creation of an asset management cell to map the public assets inside and outside the state. The idea was to identify all the assets which are lying underutilised or worse encroached upon by private entities and monetise them to raise revenues. Those assets which need restoration can be rejuvenated so that their life value increases. This exercise has proved immensely successful. Abhimanyu declared in his latest budget speech that the cell has identified 24,109 government properties so far whose monetisation will help the government raise Rs 1,000 crore in 2018-19.

d) Online monitoring of flow of funds from the government on a real time basis. This has vastly improved transparency. Replacing bank accounts of departments with Personal Ledger Account has helped the government use previously unutilysed funds in these accounts. In the latest budget, Abhimanyu announced that starting 1 April, all government entities will have to consolidate their various bank accounts into one or two major accounts.

Like previous years, 2018-19 budget also had some important proposals. Two of them merit attention here.

First is a new health scheme, Cashless Medical Services Scheme, for government employees and pensioners. It is a form of medical voucher that beneficiaries can show to government and even private empanelled hospitals and avail services worth Rs 5 lakh for only cardiac emergencies, accidents, third and forth stage cancer, coma, brain haemorrhage and electrocution.

Second is decision to adopt sexed semen technology on a massive scale in the next one year. In his speech, Abhimanyu said that this will help the state government tackle the problem of stray bulls as 90 per cent of calves born of the technology would be female. Additionally, the increased supply of female cattle would help boost milk production.

But this move is problematic. First, not just bulls, stray cows are also creating big menace on roads and even in the fields, destroying crops. Farmers in many parts of the state are forced to sleep in their farms to ensure their crops are not mowed over by cattle. The situation has worsened after strict enforcement of cow-slaughter ban and closing down of many illegal slaughterhouses in neighbouring Uttar Pradesh. If supply of cows is drastically increased as is government’s intention, it will only replace one problem with the other. The government must tread carefully.

To sum up, Abhimanyu has delivered good budgets and has injected fresh thinking into a department which is perceived to be an extended arm of the Chief Minister’s Office. How many of his initiatives pan out fully and achieve the intended objectives will determine his legacy.