Fiscal Responsibility Legislation in Indian States State Perspectives-Kerala Experience Presentation by K. Jose Cyriac Principal Secretary (Finance) Government of Kerala 1
Revenue Expenditure Prelim BE 2002-03 2003-04 2004-05 2005-06 1.Edn., Sprts, Cltre 2968 3080 3252 3861 20% 4% 6% 19% 2.Admn Servcs incl Police 846 911 970 1158 3.Health 760 832 889 1144 4.Rural Devpmnt 1079 761 1292 2025 5. Agri & Allied incl Coop 735 647 746 927 6. Roads & Bridges etc 468 456 595 909 7. Socl. Security & Welfare 345 293 344 322 8. Collection of Taxes 214 313 384 401 9. Industries 129 192 194 178 0. Irrigation 152 180 180 226 1. Others 1830 2093 2158 2452 2.Interest 2947 3328 2990 3884 3.Pension 2283 2409 2600 3209 Total Revenue Exp. 11878 14756 15493 16594 20696 of which Salary Exp 4679 5147 6000 6268 Increase in Rev Exp. over 27% 5% 7% 25% previous year 2
Capital Expenditure CAPITAL EXPENDITURE Prelim BE 2002-03 2003-04 2004-05 2005-06 PWD 301 261 213 92 Irrigation 132 159 174 102 Agri & Allied 48 39 36 58 Industry 33 31 57 73 Health 46 22 26 26 Others 138 128 106 239 Sub-Total (Total Capital Outlay 699 640 612 590 Discharge of Internal Debt 258 467 529 672 Repaymnt of Loans to Centre 1004 1875 570 537 Loans & Adv by State Govt 250 1292 171 583 Total Capital Expenditure 2211 4274 1882 2382 3
Interest, Pension & Salary Year Interest Pension Salary Rs cr Increase Rs cr Increase Rs cr Increase 1993-94 687 465 1836 1994-95 820 19.3% 565 21.7% 2194 19.5% 1995-96 924 12.7% 717 26.8% 2230 1.6% 1996-97 1103 19.4% 754 5.1% 2617 17.3% 1997-98 1286 16.6% 913 21.1% 2803 7.1% 1998-99 1446 12.5% 1154 26.4% 3255 16.1% 1999-00 1952 35.0% 1808 56.7% 4503 38.4% 2000-01 2258 15.6% 1929 6.7% 4492-0.2% 2001-02 2489 10.3% 1838-4.7% 4201-6.5% 2002-03 2947 18.4% 2283 24.2% 4679 11.4% 2003-04 3328 12.9% 2409 5.5% 5067 8.3% 2004-05 Pre 2990-10.2% 2600 7.9% 6000 18.4% 2005-06 BE 3884 29.9% 3209 23.4% 6268 4.5% CAGR 17.1% 17.9% 10.7% 4
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 1993-94 2988 76.2% 69.6% 1994-95 3579 76.7% 70.7% 1995-96 3871 71.4% 66.4% 1996-97 4474 72.8% 65.9% 1997-98 5002 70.3% 60.7% 1998-99 5855 81.3% 63.5% 1999-00 8263 104.0% 71.4% 2000-01 8679 99.4% 73.1% 2001-02 8528 94.2% 73.1% 2002-03 9909 93.2% 67.1% 2003-04 10804 91.4% 69.7% 2004-05 P re 11590 90.1% 69.8% 2005-06 B E 13361 80.4% 64.6% 5
Growth of Interest, Pension & Salary Growth of Interest, Pension & Salary 15 10 5 Interest Pension Salary Total I+P+S 0 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 Pre 2005-06 BE Year 6 Rs 1000 cr
Pension Vs Salary 7 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 30 25 20 15 10 5 0 Pension Vs Salary Year Pension Salary Rs 1000 cr
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. 1992-93 1554 2721 1630 5905 1993-94 1735 3114 2350 7199 21.9% 1994-95 2079 3726 3016 8821 22.5% 1995-96 2486 4238 3389 10113 14.6% 1996-97 2971 4613 3838 11422 12.9% 1997-98 3585 4991 4293 12869 12.7% 1998-99 4424 5648 5628 15700 22.0% 1999-00 5735 571 5903 8538 20176 28.5% 2000-01 7627 1012 6102 10190 23919 18.6% 2001-02 9342 1475 6347 11262 26951 12.7% 2002-03 11747 2306 6535 12778 31060 15.2% 2003-04 17421 4577 5628 14403 37452 20.6% 2004-05 Pre 21449 7370 6092 14169 41709 11.4% 2005-06 BE 23308 6832 16046 46186 13.7% CAGR 25.9% 6.1% 19.9% 17.9% CAGR - Compounded Annual Growth Rate 8
Debt 9 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 BE 2004-05 Prelim 2005-06 BE 50 40 30 20 10 0 Year Total Debt Rs 1000 cr
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 1 2 3 = 1-2 4 5 6 7 1993-94 4293 3922 371 9.5% 935 1994-95 5066 4666 400 8.6% 1109 31877 3.5% 1995-96 5826 5424 403 7.4% 1303 36762 3.5% 1996-97 6788 6145 643 10.5% 1543 44460 3.5% 1997-98 8241 7118 1123 15.8% 2414 49484 4.9% 1998-99 9228 7198 2030 28.2% 3012 56247 5.4% 1999-00 11566 7942 3624 45.6% 4537 62520 7.3% 2000-01 11878 8731 3147 36.0% 3878 69748 5.6% 2001-02 11662 9056 2606 28.8% 3269 79420 4.1% 2002-03 14756 10634 4122 38.8% 4990 90942 5.5% 2003-04 15496 11815 3680 31.1% 5539 90171 6.1% 2004-05 Pre 16594 12869 3725 28.9% 4406 100237 4.4% 2005-06 BE 20696 16624 4072 24.5% 5171 111624 4.6% CAGR 13.7% 11.7% 12.2% CAGR - Compounded Annual Growth Rate 10
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) 8 9 10 11 12 13 14 1994-95 3.5% 36% 28% 189% 18% 1.19 1995-96 3.5% 31% 28% 186% 17% 0.90 7.4% 1996-97 3.5% 42% 26% 186% 18% 0.97 10.5% 1997-98 4.9% 47% 26% 181% 18% 0.80 15.8% 1998-99 5.4% 67% 28% 218% 20% 19.60 28.2% 1999-00 7.3% 80% 32% 254% 25% 2.76 45.6% 2000-01 5.6% 81% 34% 274% 26% 1.87 36.0% 2001-02 4.1% 80% 34% 298% 27% 3.40 28.8% 2002-03 5.5% 83% 34% 292% 28% 0.88 38.8% 2003-04 6.1% 66% 42% 317% 28% 1.85 31.1% 2004-05 Pre 4.4% 85% 42% 324% 23% 1.27 28.9% 2005-06 BE 4.6% 79% 41% 278% 23% 0.47 24.5% Compounded Annual Growth Rate (CAGR) ---> 1.54 11
State Debt Situation 2004-05 Sl State Interest Debt to No to TRR TRR 1.Jharkhand (Best) 10.69% 196.30% 2.Goa 12.41% 87.04% 3.Chattisgarh 14.37% 142.72% 4.Karnataka 15.10% 178.65% 5.Tam il Nadu 21.09% 202.75% 6.Madhya Pradesh 21.19% 244.27% 7.Haryana 23.05% 223.08% 8.Andhra Pradesh 23.21% 206.31% 9.Bihar 23.63% 263.30% 10.Maharashtra 24.40% 232.10% 11.Punjab 24.70% 307.86% 12.Kerala 25.15% 294.89% 13.Gujarat 28.58% 339.06% 14.Rajasthan 29.55% 343.04% 15.Orissa 30.20% 335.06% 16.Uttar Pradesh 30.80% 347.82% 17.W est Bengal 47.93% 490.10% Total 17 States 25.42% 273.70% Total All States 24.37% 263.27% Includes only Non-Special Category States Source: Planning Commission Mid-Term Review (June 2005) 12
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
Change in Debt-GSDP Ratios (As on 31 Mar 2003) Sl As on Aver- Incre- No State 31 Mar age ease 2003 1992-97 1.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
Primary Revenue Balance Sl 1997-1998- 1999-2000- 2001-1997-02 No State -98-99 -00-01 -02Avg. 1.Andhra Pradesh 1450-40 1868 198 1702 1036 2.Haryana 101-543 172 884 569 237 3.Karnataka 1117 401-313 525-602 226 4.Bihar 1272 522-688 -587 410 186 5.Rajasthan 1315-753 -815 706 82 107 6.Goa 104 3-31 -14 27 18 7.Madhya Pradesh 1191-1037 -794 1091-914 -93 8.Uttar Pradesh 65-3180 -700 1166 2038-122 9.Punjab 365-312 -91 7-603 -127 10.Orissa 387-780 -1336 360 5-273 11.Tamil Nadu 400-1315 -1689-312 774-428 12.Kerala 163-584 -1672-889 -116-620 13.Maharashtra 324-253 615-2609 -1759-736 14.Gujarat 866-601 -809-3171 -2526-1248 15.West Bengal 116-1906 -5118-2332 -2481-2344 Total 9236-10378 -11401-4977 -3394-4183 Includes only Non- Special Category States Source: Debt Sustainability of States (Jan 2005) By Dr Mrs. Indira Rajaraman, NIPFF, Delhi 15
Buoyancy of State's Own Tax Revenues (1981-2002) Sl State Tax No Buoyancy 1.Bihar (Best) 1.17 2.Orissa 1.13 3.Uttar Pradesh 1.08 4.Kerala 1.07 5.Goa 1.07 6.Rajasthan 1.07 7.M adhya Pradesh 1.07 8.Karnataka 1.04 9.Gujarat 1.04 10.Tam il Nadu 1.02 11.Haryana 1.00 12.M aharashtra 0.97 13.W est Bengal 0.97 14.Andhra Pradesh 0.94 15.Punjab 0.94 Includes only Non-Special Category States Source: Debt Sustainability of States (Jan 2005) by Dr Mrs. Indira Rajaraman, NIPFF, Delhi 16
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
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
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
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
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
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
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
SEPARATE LEGISLATION FOR CAPPING GUARANTEES Kerala Ceiling on Government Guarantees Act, 2003 brought into effect from 5-12-2003. Ceiling on Government guarantees as on the 1 st day of April of any year fixed at Rs.14,000 crore. 24
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
REVENUE & FISCAL DEFICITS Prelim BE 2002-03 2003-04 2004-05 2005-06 A : Revenue Receipts 10634 11815 12869 16624 F(1) Revenue Expenditure 14756 15496 16594 20696 G : Revenue Deficit (A - F(1)) -4122-3681 -3725-4072 F(2) Total Capital Expenditure -949-1931 -612-1174 B(1) Recoveries of Loans 77 73 78 75 H : Fiscal Deficit [G + F(2) - B(1)] -4994-5539 -4259-5171 D(1)a Interest 2947 3328 2990 3884 I : Primary Deficit (H - D(1)a) -2047-2211 -1269-1287 26
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
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
Practical Difficulties in implementation. Non-tax revenue negligible Absence of an effective liability management system 29
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
THANK YOU 31