Gujarat budget exhibits a sound development strategy

This column is motivated by the conviction that state budgets deserve a more prominent role in policy debates involving India’s public financial management.

In 2009-10, the share of all states combined in India’s total government expenditure and revenue was 53% and 64%, respectively.

States play a critical role in the delivery of public services, and in implementing Central schemes. Thus, constructive and informed debates to improve their public financial management are critical in the post-2008 global financial crisis environment where fiscal policy and sovereign debt sustainability issues have acquired greater prominence.

Gujarat’s 2012-13 budget exhibits sound development strategy, with proven record of competent implementation. The strategy is based on knowledge economy and entrepreneurship.
T
he annual state plan expenditure for 2012-13 is estimated to be Rs50,599 crore, with social services allocated 40%, agriculture and related areas 32.4%, and transport 9.8%.

The strategy recognises that the window available for India as a country, and Gujarat as a state, must take advantage of favourable demographic trends, aspirations and dynamism of its people and of relatively benign external factors in no more than the next 15-20 years.

Several initiatives in the budget illustrate knowledge-based development strategy, adapted for Gujarat’s specific context and needs, which signify future orientation, and potential for empowering all the citizens of the state in an even-handed manner.

Among these:
Gujarat is set to become the first state in the country to generate solar power through panels mounted atop a 100km stretch of Narmada canal. This could reduce water losses through evaporation, a major problem in canal irrigation. It could also economise on land, a major constraint in developing solar power in India. The solar energy generated will be available for villages near the canal, substantially improving their connectivity, and thereby empowering them to meet the challenges of the 21st century.

The budget also promotes roof-top solar power generation in several cities;

Upgradation of 5800 km of roads connecting to different villages and cities;

Completion of all remaining agricultural electricity connections by 2015;

Establishment of an autonomous university for infrastructure, engineering and management: a vital initiative given India’s infrastructure needs;

Partnering of Gujarat state companies with Central government companies for inter-state petrochemical pipelines, covering about one-third of the country; and

Creation of e-libraries throughout the state, empowering the people in participating in the digital age.

The aggregate fiscal indicators exhibit a revenue surplus of Rs3,615 crore, and an overall deficit of Rs17,830 crore, equivalent to 2.63% of the state’s gross domestic product.

These suggest moderately encouraging aggregate fiscal outcome. But this is highly dependent on sustaining rapid economic growth of recent years. The state’s income grew at an average rate of 16.7% at current prices during 2005-06 and 2010-11 period, and 10.3% in real terms.

There are concerns about Gujarat’s moderately high debt to gross state product levels. RBI estimates for 2010-11 put Gujarat’s debt ratio at 31.4% lower than West Bengal (40.8%) and Bihar (39.5%), but higher than Haryana (18.9%), another state with solid infrastructure investment.

This suggests that Gujarat’s fiscal space is more limited than its deficit figures suggest.

There are two other areas which merit substantial improvement.
First, Gujarat needs to focus further improving its social and public health indicators, particularly the sex ratio, infant mortality rate, and rural and urban sanitation.

Second, the budget speech needs to be more analytical and informative, explaining the strategy and assumptions underlying the exercise.

In particular, the fiscal accounts need to be more detailed. It is time for Gujarat to begin multi-year budgeting, and gradually progress from cash to accrual accounting, so that balance sheet asset registry can be prepared for better public financial management.

All the same, Gujarat’s 2012-13 Budget is designed to keep its lead as a high-growth, innovative and competent state.

The writer is professor of public policy, National University of Singapore, and can be reached at mukul.asher@gmail.com