Budget Analysis Bihar Budget 2012-13 13 The Minister of Finance, Sushil Kumar Modi, presented the General Budget 2012-13 to the State Assembly on February 24, 2012. In his address, he commented on the fiscal performance of the State in 2011-12 and laid out his budget proposals for 2012-13. Key financial indicators Budget data is usually presented in tabular form with four key columns: for the current year, and for the previous year, and Actuals for the year before that. Thus, each table presents information for the current year and the previous two years. Revenue v/s Capital account One way to analyze the budget is to look at the revenue and capital account. Table 1 presents this information. (Please read Box I & II for an explanation of the technical terms used in the table). Box I: How are receipts and expenditure classified? In the table below, receipts have been classified as revenue and capital receipts. Receipts from sources such as taxation, dividends from companies owned by the government and user charges on public services are classified as revenue receipts. Receipts from sources such as borrowing and disinvestment of public sector companies are classified as capital receipts. Capital receipts reduce assets or increase liabilities. Expenditure has been categorized as revenue and capital expenditure. Capital expenditure is used to create assets or to reduce liabilities e.g. building a road, repaying a loan. Revenue expenditure is used on items such as salaries and administrative expenses. Box II: What is revenue deficit/ surplus? A revenue deficit is incurred when the government s revenue expenditure exceeds its revenue receipts. This implies that the government is dis-saving. It means that the government will have to borrow not only to finance its investment but also its consumption. This will lead to an increase in debt and interest liabilities, and could force the government, eventually, to cut expenditure. In case receipts exceed expenditure, the government generates a revenue surplus. Table 1: Analysis of revenue and capital account (Rs. Crore) Actuals (2010-11) Total Receipts (a +b) 50,577 65,313 66,043 77,384 18% Total Revenue Receipts (a) 44,532 56,206 56,136 68,048 21% Total Capital Receipts (b) 6,044 9,107 9,907 9,336 3% Total Expenditure (c + d) 50,705 65,326 72,770 78,687 20% Total Revenue Expenditure (c) 38,216 49,934 55,445 60,959 22% Total Capital Expenditure (d) 12,489 15,392 17,325 17,728 15% Revenue Surplus (Total Rev. Receipts Total Rev. Exp.) 6,316 6,272 691 7,089 13% - In the previous year, the government s total expenditure exceeded the budgeted amount by Rs. 7,444 crore. The budget had estimated an expenditure of Rs. 65,326 crore. Analyst: Karan Malik (karan@prsindia.org) Coordinator: Anil Nair (anil@prsindia.org, 9871916608) February 29, 2012 Centre for Policy Research Dharma Marg Chanakyapuri New Delhi 110021 Tel: (011) 2410 6720, (011) 2611 5273-76, Fax: 2687 2746 www.prsindia.org
However, revised expenditure is likely to be Rs. 72,770 crore. This is mainly on account of the increase in revenue expenses. - The increase in revenue expenses will affect the revenue surplus generated by Bihar. The Budget 2011-12 had estimated a surplus of Rs. 6,272 crore. However, revised estimates indicate that a surplus of only Rs. 691 crore may be generated. In the coming year, the surplus is estimated to increase again to Rs. 7,089 crore, a significant increase over the performance last year. - In the coming year, the government has earmarked Rs. 17,728 crore (or 23% of total expenditure) as capital expenditure. Of this, Rs. 13,412 crore will be used in the creation of assets. Break-up of receipts and expenditure Table 2 gives a break-up of receipts by source. It also splits expenditure into Plan and Non-plan. Box III: How else is expenditure classified? Government expenditure is also classified as Plan and Non-plan. Plan expenditure covers expenditure on schemes and projects covered by the five-year Plans. Non-plan expenditure is expenditure not covered by the Plans and includes items such as interest payments on government debt, expenditure on police, and even maintenance of existing government establishments such as schools and hospitals. Box IV: What is fiscal deficit? Fiscal Deficit = (Total receipts excluding borrowing) - Total expenditure The excess of total government expenditure over total receipts is called the fiscal deficit. It is an indication of the total borrowings needed by the government. Fiscal deficit may occur either due to a revenue deficit and/ or due to some capital expenditure undertaken by the government. Table 2: Budget at a glance (Rs. Crore) Receipts Actuals (2010-11) Total Receipts (a + b) 50,577 65,313 66,043 77,384 18% Total Revenue Receipts (a) 44,532 56,206 56,136 68,048 21% Share of Central Taxes 23,978 26,966 28,806 33,126 23% Tax Revenue 9,870 12,583 12,609 15,695 25% Non Tax Revenue 986 2,986 1,037 3,142 5% Grants-in-aid 9,699 13,671 13,684 16,084 18% Total Capital Receipts (b) 6,044 9,107 9,907 9,336 3% Recoveries of Loans & Advances 12 18 818 15-17% Internal Debt of State 5,251 6,713 6,713 7,778 16% Loans and Advances from Centre 782 2,376 2,376 1,543-35% Expenditure Total Expenditure (c +d) 50,705 65,326 72,770 78,687 20% Total non-plan expenditure (c) 29,794 37,823 42,767 45,323 20% Total plan expenditure (d) 20,911 27,503 30,003 33,364 21% Fiscal Deficit 3,970 6,194 12,890 7,569 22% Fiscal Deficit (% of State GDP) 1.86% 2.93% 5.45% 2.87%
- Revised estimates indicate the government missed its fiscal deficit target by Rs. 6,696 crore. Looking at fiscal deficit as a percentage of state GDP, the deficit estimates increased from 2.93% to 5.45%. Under the Bihar Fiscal Responsibility and Budget Management (FRBM) Act, 2006, the state government is required to keep the fiscal deficit to a level of 3% of state GDP. As a percentage of state GDP, fiscal deficit is estimated to be 2.87% in 2012-13. - Revised estimates also show a decrease of Rs. 1,949 crore in non-tax revenue. However, this decrease is expected to be corrected in 2012-13 and budget estimates for the coming year project an inflow of Rs. 3,142 crore under this line item. - In Bihar, central taxes contribute the most to the state exchequer. In 2012-13, these taxes are estimated to contribute Rs. 33,126 crore or 49% of the total revenue receipts of the state. - Public debt, comprising of internal debt and loans from the central government, will continue to remain the main source of capital receipts. It is estimated that the state will borrow Rs. 9,321 crore in 2012-13. - Rs. 45,323 crore (58% of total expenditure) is estimated to be spent on non-plan items in 2012-13. Approximately 93% of this expenditure will be spent on the revenue account. As explained above, non-plan expenditure includes items such as interest payments on government debt, expenditure on police, and even maintenance of existing government establishments such as schools and hospitals. Debt position When a government spends more than it collects by way of revenue, it incurs a deficit. The Bihar Fiscal Responsibility and Budget Management (FRBM) Act, 2006 is a measure to regulate the build up of debt. It does so by setting upper limits on state revenue and fiscal deficits. Table 3: Public debt position and interest payments Public Debt (crore) 59,733 Public Debt (% of State GDP) 22.64% Interest Payments (crore) 5,186 - In 2012-13, the public debt of the state is estimated to be Rs. 59,733 crore or 22.64% of state GDP. - It is estimated that Rs. 5186 crore (7.6% of revenue receipts) will go towards interest payments.
Revenue analysis Of the various sources of revenue, tax revenue or revenue raised by levying taxes (both central and state) is an important source. Table 4 below presents a break-up of this figure. Table 4: Tax revenue (arranged in descending order; in Rs. Crore) Total Tax Collection 39,549 41,415 48,822 23% Corporation Tax 11,245 11,638 13,384 19% Taxes on Income other than Corporation Tax 5,000 5,724 6,583 32% Taxes on Sales, Trade 6,508 6,508 7,342 13% Customs 4,357 4,877 5,608 29% Union Excise Duties 3,549 3,720 4,277 21% Service Tax 2,791 2,825 3,249 16% Taxes on Goods and Passengers 1,940 1,940 2,800 44% State Excise 1,790 1,790 2,765 54% Stamps and Registration 1,600 1,600 1,856 16% Tax on Vehicles 537 537 644 20% Other Taxes and Duties 232 256 314 35% - Tax revenue is estimated to contribute Rs. 48,822 crore in 2012-13, an increase of 23% over last year. Of this, corporation tax will contribute Rs. 13,384 crore, followed by other income taxes at Rs. 6,583 crore. - Collections from state excise tax are estimated to increase by 54% in 2012-13. Contributions from taxes on goods and passengers are also expected to increase significantly. Expenditure analysis One of the largest line items in most budgets is the expenditure on general services. General services include items such as administrative expenses, pensions and interest payments. In 2012-13, the expenditure on general services is estimated to be Rs. 24,187 crore (31% of the total expenditure of the government. Of this, 42% or Rs. 10,043 crore is expected to be spent in providing pensions and other retirement benefits. The total salary outgo of the state in 2012-13 is estimated to be Rs. 14,101 crore. The above observations highlight some important expenditure items in the budget. A more comprehensive sectoral analysis can help understand state priorities. Tables 5 presents this information:
Table 5: Budgeted expenditure (arranged in descending order; in Rs. Crore) General Services 20,018 20,738 24,187 21% Social Services 22,104 24,412 27,619 25% Education, Sports, Arts and Culture 11,233 11,968 15,377 37% Social Security, Welfare and others 5,306 6,459 6,097 15% Water, Sanitation, Housing, Urban Development 2,860 3,141 3,077 8% Health and Family Welfare 2,705 2,844 3,068 13% Economic Services 19,254 22,843 22,561 17% Irrigation, Flood control and Energy 5,600 7,673 6,616 18% Transport and General Economic Services 5,715 6,150 6,233 9% Rural Development 5,147 5,584 6,175 20% Agriculture and Allied Services 2,071 2,718 2,770 34% Industries and Mines 721 718 768 6% - Revised estimates indicate that the government is estimated to spend Rs. 7,673 crore on Irrigation, Flood Control and Energy in 2011-12. This figure is significantly higher than the amount budgeted last year. Expenditure on this sector is estimated to decrease in 2012-13. - In 2012-13, Education, Sports, Arts and Culture is estimated to receive the highest allocation of Rs. 15,377 crore. This is followed by Irrigation, Flood Control and Energy at Rs. 6,616 crore. - The highest increase in allocation is seen in the case of Education, Sports, Arts and Culture and Agriculture and Allied Services. DISCLAIMER: This document is being furnished to you for your information. You may choose to reproduce or redistribute this report for non-commercial purposes in part or in full to any other person with due acknowledgement of ( PRS ). The opinions expressed herein are entirely those of the author(s). PRS makes every effort to use reliable and comprehensive information, but PRS does not represent that the contents of the report are accurate or complete. PRS is an independent, not-for-profit group. This document has been prepared without regard to the objectives or opinions of those who may receive it.