Haryana Budget Eschews Populism, Sticks To Fiscal Fundamentalism (Again)

Haryana Finance Minister Captain Abhimanyu presented his fifth budget on Monday (25 February). True to his reputation, Abhimanyu stuck to fiscal prudence and announced many firsts.

But first, a look at how some main economic indicators have moved during the tenure of the first Bharatiya Janata Party (BJP) government in the state.

The real GSDP (gross state domestic product) growth in 2018-19 is projected to be 8.2 per cent (advanced estimates or AE), higher than the national average of 7.2 per cent and up from 6.6 per cent in 2014-15. This will take the GSDP to Rs 5.26 lakh crore at constant prices (2011-12 series) — 3.77 per cent of India’s gross domestic product (GDP). The per capita income is projected to increase to Rs 168,209 compared to India’s average of Rs 91,921.

Revenue deficit which was at 1.9 of GSDP in 2014-15 is expected to be at 1.53 percentage level (and 0.73 per cent if UDAY impact is discounted).

Fiscal deficit is seen at 2.59 per cent, showing marginal improvement from 2014-15 when it stood at 2.88 per cent.

The debt to GSDP ratio has worsened from 16.23 per cent in 2014-15 to 22.9 per cent in 2019-20 (budget estimates or 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.

Salary and pensions as percentage of total revenue receipts amounted to 43.8 per cent in 2014-15 and are estimated to improve to 37.59 per cent in 2019-20 (BE).

This performance bodes well for the state’s finances.

The state Finance Ministry had identified seven fundamental weaknesses in Haryana’s economy in a white paper published in 2015. How has the government fared in tackling these?

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. While grants-in-aid from Centre has increased by around Rs 3,000 crore, the state’s share from central taxes has gone up by Rs 7,000 crore, thanks to the new devolution formula.

Additionally, the state’s own tax revenue to GSDP ratio has increased from 9.28 per cent in 2014-15 to 15.82 per cent in 2019-20 (BE), signalling improvement in state’s tax buoyancy.

Second problem was highly skewed capital: revenue expenditure. In 2014-15, percentage share of capital expenditure was only 20 per cent. This is said to improve and be at 29 per cent (BE) level, similar to last year’s revised estimates.

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 2019-20 (BE), this will fall to 37.59 per cent, despite implementing Seventh Pay Commission recommendations which led to one-time expenditure boost of 21.5 per cent in salaries and pensions.

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, the Manohar Lal Khattar government has committed 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 is working to push for production of high-value vegetables in 13 districts that fall in the National Capital Region. Finance Minister Abhimanyu informed the assembly that in the primary sector, livestock is expected to register the highest growth (1.1 per cent) followed by pisciculture and aquaculture at 7.4 per cent. This portends well as far as diversification is concerned.

Fifth and sixth were decline in secondary sector, particularly industries, and regional disparities in development (only six out of 22 districts had per capita income higher than the state’s average). While Haryana has improved its ‘Ease of Doing Business’ ranking from 14 in 2015 to reach at the top now, we will have to wait for some time before we can pass a conclusive judgement on the government’s efforts.

Various proposals in successive budgets show the government wants to fix these fundamental weaknesses.

Haryana budgets have come to limelight recently for their innovative proposals such as: (a) setting up a first-of-its kind Swarna Jayanti Haryana Institute for Fiscal Management; (b) setting up Haryana State Financial Services Limited to act as an in-house treasury manager for efficient management of surplus funds of the state entities; (c) creating an asset management cell to map the public assets inside and outside the state; (d) monitoring flow of funds from the government on a real time basis and online, vastly improved transparency.

In his fifth budget too, Finance Minister Abhimanyu kept the tradition of announcing some unique initiatives.

1. The government will introduce a new bill, ‘Haryana Accountability of Public Finances Bill, 2019’ to provide for an accounting and auditing system, which will help it facilitate accountability of public finances in all state departments and entities receiving public monies. A new service 'Haryana Audit and Accounts Service’ is also being planned for implementation of this legislation.
2. Declaring a new 'Output-Outcome Framework’ which will help the government in aligning its policies so that the goals enshrined in SDGs are achieved.
3. Introduction of 'Performance Linked Outlay’ scheme for better management of fiscal resources by deterring departments to avoid parking of funds or rushed withdrawals.
4. Announcement of ‘corporate salary package’ for state government employees, who will get natural death cover of Rs 2 lakh, medical facility of Rs 50,000 and accidental insurance upto Rs 30 lakh.

And since it’s an election year, the government couldn’t have avoided giving some sop. The FInance Minister announced a sort of fixed pension for farmers which will be kind of a top up over and above the central government’s PM-KISAN scheme. All the farmer families which own less than five acres will be the beneficiaries. The amount is not yet fixed. Families of workers working in unorganised sector and whose monthly income is less than Rs 15,000 will also get a kind of pension. The total outlaw for both these beneficiaries is Rs 1,500 crore, which appears to be too less to satisfy these segments.

It seems the Finance Minister has stuck to fiscal fundamentalism over voter appeasement. This is good economics. Only time will tell if it proves to be good politics.