Virbhadra govt’s populist measures may push state into debt trap

state-into-debt-trapWith the government reverting to its old ways of raising indiscriminate loans to fund its populist agenda in the election year, the provisions of the Fiscal Responsibility and Budget Management (FRBM) Act are set to go for a toss.

Lack of political will to mobilise additional resources has landed the state in a difficult situation with the mounting wage bill, interest burden and other liabilities. With the revenue receipts not reflecting a proportionate increase, the state may be slipping into a debt trap.

The government will raise loans to the tune of Rs 7,345.55 during 2017-18 as against Rs 6,083.75 in the last financial year. As per the projections in the mid-term fiscal policy statement, the trend will continue and the total debt will shoot up from Rs 35,568 crore in 2015-16 to Rs 63,049 crore in 2020-21.

The revenue receipts are expected to increase from Rs 26,676 crore in 2016-17 to Rs 37,038 crore in 2020-21, while the expenditure will rise from Rs 27,613 crore to Rs 42,252 crore during the same period and deficit will increase from 3.51 per cent to 14.07 per cent.

The percentage of revenue deficit is projected to increase from 3.51 per cent in 2016-17 to 3.76 per cent in 2017-18, while the fiscal deficit as percentage of Gross State Domestic Product (GSDP) growth will be marginally less at 3.50 per cent against 4.23 per cent during the current financial year.

The World Bank had given a loan to the state for fiscal restructuring to reduce the debt burden. The GSDP will increase from Rs 1,24,570 crore in 2015-16 to Rs 2,06,727 crore in 2020-21 and the percentage of debt to GSDP growth will be 30.55 per cent.

The percentage of fiscal deficit to GSDP growth has also been projected at 4.99 in 2020-21 as compared to 3.50 per cent at present, while the percentage of tax revenue will decline from 5.79 to 5.30.However, the percentage of the total debt to GSDP will be 32.92 per cent in 2017-18 and the total outstanding guarantee on loans will be 22.95 per cent.

The liability on account of payment of interest on loans will also mount from Rs 3,329.77 crore to Rs 4,457.34 crore but subsidies will be capped at Rs 1,037.52 crore meaning that power subsidy to domestic consumers and subsidy on foodgrain scheme will have to be cut.The tax revenue of the government will increase marginally from Rs 7,217 crore (2016-17) to Rs 10,963 crore in 2020-21, while the revenue expenditure will increase from Rs 27,613 crore to Rs 42,252 crore.

The expenditure on salaries, pension and interest payment will increase considerably from Rs 8,964.64 crore, Rs 4,133.67 crore and Rs 3,329.77 crore to Rs 14,642 crore, Rs 6,608 crore and Rs 4,457 crore.During 2017-18, the non-tax revenue will decrease marginally from Rs 1,825.86 crore to Rs 1,602 crore and income from the power sector will be down from Rs 923.68 crore in 2015-16 to Rs 650 crore in the next financial year.

The Central grants, including share in taxes, will increase from Rs 13,696 crore in 2016-17 to Rs 14,332 crore in 2017-18 and the grants under Centrally-sponsored schemes will increase from Rs 3,436 crore during the current financial year to Rs 3,833 crore in 2017-18.Marginal increase in tax revenue

Burden on the mount

Story: The Tribune

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