Fiscal Responsibility Legislation in Indian States

Transcription

1 Fiscal Responsibility Legislation in Indian States State Perspectives-Kerala Experience Presentation by K. Jose Cyriac Principal Secretary (Finance) Government of Kerala 1

2 Revenue Expenditure Prelim BE Edn., Sprts, Cltre % 4% 6% 19% 2.Admn Servcs incl Police Health Rural Devpmnt Agri & Allied incl Coop Roads & Bridges etc Socl. Security & Welfare Collection of Taxes Industries Irrigation Others Interest Pension Total Revenue Exp of which Salary Exp Increase in Rev Exp. over 27% 5% 7% 25% previous year 2

3 Capital Expenditure CAPITAL EXPENDITURE Prelim BE PWD Irrigation Agri & Allied Industry Health Others Sub-Total (Total Capital Outlay Discharge of Internal Debt Repaymnt of Loans to Centre Loans & Adv by State Govt Total Capital Expenditure

4 Interest, Pension & Salary Year Interest Pension Salary Rs cr Increase Rs cr Increase Rs cr Increase % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % Pre % % % BE % % % CAGR 17.1% 17.9% 10.7% 4

5 Interest, Pension & Salary as % of Receipt & Expenditure I+ P + S to I+ P + S to Year Int + Pen Tot Rev Tot Rev + Sal Receipt Expentre % 69.6% % 70.7% % 66.4% % 65.9% % 60.7% % 63.5% % 71.4% % 73.1% % 73.1% % 67.1% % 69.7% P re % 69.8% B E % 64.6% 5

6 Growth of Interest, Pension & Salary Growth of Interest, Pension & Salary Interest Pension Salary Total I+P+S Pre BE Year 6 Rs 1000 cr

7 Pension Vs Salary Pension Vs Salary Year Pension Salary Rs 1000 cr

8 Composition of Debt Internal of which Loans & Provident Total % of Debt Special Advances Fund, Debt increase Year securities from Treasury over prev. issu ed to Central FD, etc Year NSSF Govt % % % % % % % % % % % Pre % BE % CAGR 25.9% 6.1% 19.9% 17.9% CAGR - Compounded Annual Growth Rate 8

9 Debt BE Prelim BE Year Total Debt Rs 1000 cr

10 Fiscal Deficit Revenue Revenue Revenue Rev. Def Gross Gross GFD Expen- Receipt Deficit as % of Fiscal State as % diture (Target = Revenue Deficit Domestic of zero in 2007 Receipt Product GSDP = % % % % % % % % % % % % % % % % % % % % % Pre % % BE % % CAGR 13.7% 11.7% 12.2% CAGR - Compounded Annual Growth Rate 10

11 7 Fiscal Indicators of Debt Stress GFD to RD to Debt to Debt to Tot Interest to GrwthRate RD to TRR GSDP GFD GSDP Rev Recpt Tot Rev of Debt to (SMV-Target (Trgt = 2% (Benchmk- (Benchmk- (Benchmk- Receipts g.r. of Rev Reduce by in 2007) <50% <30% <300% <18% <1.25-5% pa) % 36% 28% 189% 18% % 31% 28% 186% 17% % % 42% 26% 186% 18% % % 47% 26% 181% 18% % % 67% 28% 218% 20% % % 80% 32% 254% 25% % % 81% 34% 274% 26% % % 80% 34% 298% 27% % % 83% 34% 292% 28% % % 66% 42% 317% 28% % Pre 4.4% 85% 42% 324% 23% % BE 4.6% 79% 41% 278% 23% % Compounded Annual Growth Rate (CAGR) --->

12 State Debt Situation Sl State Interest Debt to No to TRR TRR 1.Jharkhand (Best) 10.69% % 2.Goa 12.41% 87.04% 3.Chattisgarh 14.37% % 4.Karnataka 15.10% % 5.Tam il Nadu 21.09% % 6.Madhya Pradesh 21.19% % 7.Haryana 23.05% % 8.Andhra Pradesh 23.21% % 9.Bihar 23.63% % 10.Maharashtra 24.40% % 11.Punjab 24.70% % 12.Kerala 25.15% % 13.Gujarat 28.58% % 14.Rajasthan 29.55% % 15.Orissa 30.20% % 16.Uttar Pradesh 30.80% % 17.W est Bengal 47.93% % Total 17 States 25.42% % Total All States 24.37% % Includes only Non-Special Category States Source: Planning Commission Mid-Term Review (June 2005) 12

13 Debt-GSDP Ratio of States (As on 31 Mar 2003) Sl No State Debt/GSDP Ratio 1.Tamil Nadu (Best) 27.8% 2.Maharashtra 29.8% 3.Haryana 30.1% 4.Karnataka 32.4% 5.Andhra Pradesh 34.1% 6.Gujarat 38.0% 7.Kerala 40.3% 8.Goa 40.6% 9.Madhya Pradesh 41.8% 10.W est Bengal 47.4% 11.Punjab 50.8% 12.Uttar Pradesh 53.1% 13.Rajasthan 53.5% 14.Orissa 70.8% 15.Bihar 71.2% Source: RBI Includes only Non-Special Category States 13

14 Change in Debt-GSDP Ratios (As on 31 Mar 2003) Sl As on Aver- Incre- No State 31 Mar age ease Goa (Best) 40.6% 41.6% -1.0% 2.Tamil Nadu 27.8% 19.7% 8.1% 3.Haryana 30.1% 20.0% 10.1% 4.Andhra Pradesh 34.1% 22.4% 11.7% 5.Maharashtra 29.8% 17.9% 11.9% 6.Karnataka 32.4% 20.3% 12.1% 7.Kerala 40.3% 28.0% 12.3% 8.Punjab 50.8% 36.2% 14.6% 9.Gujarat 38.0% 20.5% 17.5% 10.Uttar Pradesh 53.1% 34.2% 18.9% 11.Madhya Pradesh 41.8% 22.0% 19.8% 12.W est Bengal 47.4% 24.2% 23.2% 13.Rajasthan 53.5% 28.9% 24.6% 14.Orissa 70.8% 41.7% 29.1% 15.Bihar 71.2% 37.8% 33.4% Includes only Non-Special Category States Source: Debt Sustainability of States (Jan 2005) by Dr Mrs. Indira Rajaraman, NIPFF, Delhi 14

15 Primary Revenue Balance Sl No State Avg. 1.Andhra Pradesh Haryana Karnataka Bihar Rajasthan Goa Madhya Pradesh Uttar Pradesh Punjab Orissa Tamil Nadu Kerala Maharashtra Gujarat West Bengal Total Includes only Non- Special Category States Source: Debt Sustainability of States (Jan 2005) By Dr Mrs. Indira Rajaraman, NIPFF, Delhi 15

16 Buoyancy of State's Own Tax Revenues ( ) Sl State Tax No Buoyancy 1.Bihar (Best) Orissa Uttar Pradesh Kerala Goa Rajasthan M adhya Pradesh Karnataka Gujarat Tam il Nadu Haryana M aharashtra W est Bengal Andhra Pradesh Punjab 0.94 Includes only Non-Special Category States Source: Debt Sustainability of States (Jan 2005) by Dr Mrs. Indira Rajaraman, NIPFF, Delhi 16

17 KERALA FISCAL RESPONSIBILITY ACT, 2003 Act came into force with effect from 5 th December 2003 Kerala Fiscal Responsibility Rules, 2005 framed for operationalisation of the Act conforming to RBI/GoI guidelines and 12 th Finance Commission recommendation. Gives legislative underpinning to Medium Term Fiscal Reforms Programme 17

18 Distinct Features 1. Fiscal Policy Statement and Fiscal Policy Strategy Statement Fiscal Policy Statement to set forth a three year rolling target for fiscal indicators Fiscal Policy Strategy Statement to contain policies of Government relating to taxation, expenditure, borrowings, lending & investing, etc, strategic priorities of Government and evaluation of current policies 18

19 Distinct Features. 2.Fiscal Management Principles Revenue Deficit to be brought to nil and Fiscal Deficit to be reduced to 2% of GSDP by 31 st March, 2007 (to be changed as 2009). Year-wise targets for phasing out Revenue Deficit and reducing Fiscal Deficit have been prescribed in the Rules. 19

20 Distinct Features. 3.Measures for Fiscal Transparency Budget in Brief document to contain all relevant disclosure statements including statement on the number of employees in Government, public sector and aided institutions and related salary. 20

21 Distinct Features. 4. Public Expenditure Review Committee Five-member Public Expenditure Review Committee to report on items where deviation from the fiscal targets has occurred during the previous year. 21

22 Distinct Features. 5. Measures to Enforce Compliance Government to specify in the annual budget contingent measures intended to be taken if deficits increase beyond specified levels. Proportionate reduction of voted expenditure 22

23 Distinct Features. 5. Measures to Enforce Compliance Revenue enhancing measures Finance Minister to make statement in the Assembly on any deviation in meeting targets and remedial measures to be taken in this regard 23

24 SEPARATE LEGISLATION FOR CAPPING GUARANTEES Kerala Ceiling on Government Guarantees Act, 2003 brought into effect from Ceiling on Government guarantees as on the 1 st day of April of any year fixed at Rs.14,000 crore. 24

25 SEPARATE LEGISLATION FOR CAPPING GUARANTEES.. No Government guarantee for private individuals, institutions or companies. Non-waivable minimum guarantee commission of 0.75%. The guarantee given to a PSU cannot be extended if there are arrears of guarantee commission. Constitution of a Guarantee Redemption Fund using guarantee commission. 25

26 REVENUE & FISCAL DEFICITS Prelim BE A : Revenue Receipts F(1) Revenue Expenditure G : Revenue Deficit (A - F(1)) F(2) Total Capital Expenditure B(1) Recoveries of Loans H : Fiscal Deficit [G + F(2) - B(1)] D(1)a Interest I : Primary Deficit (H - D(1)a)

27 Practical Difficulties in implementation Lack of political will. Lack of teeth. Targets of Revenue & Fiscal deficits unrealistic. Incentives from Government of India to undertake fiscal reforms in the States not attractive. 27

28 Practical Difficulties in implementation. Enhancement of tax revenue dependant on VAT. XII Finance Commission Recommendations. Limitations of Govt. in curtailing revenue expenditure of committed items, beyond a point. 28

29 Practical Difficulties in implementation. Non-tax revenue negligible Absence of an effective liability management system 29

30 Positive Aspects of the Legislation Awareness among other Departments about problems of Finance. Transparency, leading to debate and to pressure on the politician. Raising debt through Government Guarantees has almost stopped. 30

31 THANK YOU 31