Ranchi: The state of Jharkhand has improved its quality of public expenditure, particularly capital expenditure in social sectors such as education and public health facilities over the last two years but its fiscal deficit and revenue surplus numbers for the next financial year (FY 2024-25) are overstated and the actual fiscal number would be much higher during the next year, showed an analysis by a rating agency.
Last month the Jharkhand government presented a budget of Rs 1.28 lakh crore. It has budgeted the revenue surplus and fiscal deficit at 4.0 percent and 2.0 percent, respectively, of the gross state domestic product (GSDP) in FY 2024-25. However, the analysis by the economists at India Ratings and Research showed that these numbers are overstated.
“The overstated revenue receipts and nominal GSDP would result in a lower revenue surplus in FY 2024-25 by about 1 percentage point. Consequently, the fiscal deficit would be coming in higher at 2.9 percent of GSDP in the same period,” said Dr. Sunil Kumar Sinha, Principal Economist of India Ratings and Research.
Sinha points out that even then Jharkhand’s fiscal deficit for the next financial year will be within the indicative limits of the 15th Finance Commission, which is 3 percent of the state GDP.
Notable improvement in public expenditure
Although the state government’s projection for next year’s fiscal deficit and revenue surplus is overstated, the state, according to the analysis by the rating agency, has improved its quality of public expenditure considerably in the last two years.
Paras Jasrai, Senior Analyst of India Ratings and Research says that a positive development in the state’s finances has been a notable improvement in its quality of public expenditure.
“This can be gauged by the capital outlay as a proportion of the total expenditure. This ratio has been budgeted at a 17-year high of 19.9 percent in FY 2024-25 up from 19 percent in FY 2023-24 as per the revised estimates,” Jasrai said in a statement sent to ETV Bharat.
Moreover, within the capital expenditure of the state government, a favourable trend that has emerged since FY 2022-23 is the enhanced focus on social services, which includes capital expenditure on medical, public health, and education among other things.
The agency’s analysis showed that the share of social services has averaged 35.9 percent of capital outlay during FY 2022-23-FY 2024-25 as per the budget estimates which is highest since FY 2010-11.
“This is vital from the perspective of development of human capital, especially since Jharkhand’s social infrastructure lags behind the rest of the states,” observed the economist.
Revenue buoyancy leads to increased public expenditure
Jharkhand has been able to increase its public expenditure in the current financial year mainly because of better receipts. Jharkhand’s total receipts in FY 2023-24 as per the revised estimates were higher by Rs 41 billion than budgeted due to non-debt capital receipts. The non-debt capital receipts were higher by Rs 72.1 billion, while the revenue receipts were lower by Rs 31.1 billion in FY 2023-24 as per the revised estimates than budgeted revenue receipts.
Higher total receipts resulted in the expenditure being pushed up roughly by the same amount in the same period. As a result, both revenue and capital expenditure were increased by Rs 34.2 billion and Rs 7.0 billion, respectively, in the current financial year as per the revised estimates compared to the budget estimates for the year.
As a result, Jharkhand’s revenue surplus is estimated to be lower at 1.7 percent of GSDP in FY 2023-24 as per the revised estimates. It was estimated to be 3.2 percent of the GSDP in the budget estimates. The fiscal deficit, however, is pegged to improve marginally to 2.7 percent of GSDP from 2.8 percent in the same period.
Growth Assumption Moderately High
The FY 2024-25 budget proposals of the government of Jharkhand are based on the assumption that the state GDP would grow at 9.8 percent in the next year as against the nominal GSDP growth of 8.7 percent during the current year as per the revised estimates.
According to economists at the agency, it appears slightly high, given the average nominal GSDP growth of 8 percent during the last seven financial years.
Current Expenditure Estimate on the Higher Side
The analysis of Jharkhand’s budget also showed that lower-than budgeted revenues would result in lower revenue expenditure in the next financial year. For example, revenue expenditure in FY 2024-25 is budgeted to grow at 4.2 percent over the revised estimates for the current financial year.
Salaries and pension are budgeted to grow 1 percent on the year-on-year basis and negative 0.1 percent on the year-on-year basis, respectively in the next financial year. The other revenue expenditure, which includes committed expenditure of the state government such as salaries, pensions and interest payments, are budgeted to grow 7.3 percent in the next year.
