Tread cautiously, Hon Chief Minister
Fiscal health of the economy is certainly very worrisome
My detailed dissection of the Goa State Budget 2020-21 presented in the last week, highlights the placed priorities ranked by our bureaucracy despite the clear intentions of our young and energetic Chief Minister. Another closer look at the Budget Documents gives a feeling that our popular CM seems to be fighting the battle of fiscal crisis single-handedly, with the illogical demands of his colleagues in his Council and the insipid inputs from his Finance department.
The fiscal health of the economy is certainly very worrisome. Without a clear roadmap for fiscal recovery, the finance department of our State has made the Goa State Budget 2020-21 as a very unserious and obligatory exercise.
The current budget projects the size of the State economy of around Rs. 92,000 crores through a budget size of around Rs. 21,000 crores. Despite the growth it projects for the next year and the rosy performance depicted in the passing year, budget fails to offer us any corroborative evidence of increase in unemployment, in investments, and spurt in domestic economic trade and commerce.
Given the fact that there has been a massive slump in mining, with nothing remarkable happening in tourism, manufacturing growth almost flattened and agricultural growth into negatives; there seems to be no serious thought process on what presently thrives the economic growth of the State, or what is and rather should be, the current source of income to Goans.
The Budget 2020-21 presents an average per-capita income of around Rs. 6 lakhs compared to national per capita income of less than Rs. 1.5 lakhs. Even if we assume that the actual population of Goa is probably twice than the actual presented figure of 15 lakh, our average per-capita income still works out to be double than the national average. Despite this higher per-capita income our own-tax projected at Rs. 5845 crores for 2021 seems to be a meagre figure with our own-tax revenue to GDP ratio working out to a mere 6.35 percent, compared to 10.9 percent for all-India levels. This mismatch of figures indicates glaring inconsistencies in our fiscal management, well reflective in budget 2020-21 making it seem a poor exercise. Our tax-revenue collection thus proves to be inefficiently insufficient.
Similar is the case with our local savings rate. The local bank deposits in the economy as on March 2019 is Rs. 81900 crores, and given its average 10-15 percent growth over the decade, it almost equates the domestic product of the State. Even if one assumes flat interest earnings of 7 percent on such deposits, the interest portion equals the gross own-tax revenue of our State. This proves Goans feel more secure and better off to invest and earn rather than investing their residual earnings in economic activity and the failure of the government to bring this back in to the economy.
My rough estimate places our NRE (non resident external) deposits at around 20 percent in the total deposits generated in the State, which is roughly works out to be 12 percent of the present budget size, or 3 percent of our projected GDP. The above data thus prove that our economic growth in the State primarily derives from the increase in non-revenue generating economic sectors, or the informal sector that still
remaining of the tax-net, with the significant portions coming from non-economic sectors giving rise to the twining problems of rising unemployment and declining investments.
Our indirect tax collections have remained flat at around Rs. 2500 to Rs. 2900 crores for many years while the GSDP projections have grown indicating drastic indirect tax leakages. The current budget precisely lacks seriousness to search new sources of revenue generation, and also to induce larger investments from the unproductive and idle savings of the Goans. The unorganised sector driving this growth is also left untaxed. No targeted interventions are seen to generate revenue from the core economic centres either.
No concrete measures
The budget enforcement seems further difficult given the last year’s enforceability of revenue plan was just 31 percent. The total revenue of the government has never increased more than average of Rs. 9800 crore or at around Rs. 820 per month, and thus expected revenue of Rs. 13,300 in the next year looks pretty unrealistic. In comparison our expenses are close to Rs. 860 crores a month and in absence of any measures for a sizeable revenue increase we would have liked to see some concrete measures to curtail the unwarranted and wasteful expenditures.
The budget intends to be an employer for 1200 odd unemployed by further burdening the budget, rather than taking steps to facilitate employment in the economy. The unproductive junket tours (mainly tourism-related) could be done away with. The revenue leakages and rampant corruption in the River navigation, Transport department, and Government Corporations due to weak financial controls
needed to be plugged. The EDC, IDC, IT Corporation could be looked as good revenue centres while the Kadamba, GIDC, Goa Meat, Tourism Corporation and the Sanjeevani Factory should be monitored closely. The taxes on Casino industry, very often underreporting their footfalls revenue and turnover could have been revised upwards.
Many businesses like quarrying, sand mining, rent-a-car/bikes, and destination weddings EDM festivals in the expanding unorganised sector could be brought under the tax net. The local self-governing bodies like the Panchayats and Municipal Councils could have been constrained to recover their pending arrears, while the excess in the salary accounts of government departments, corporation and aided institutions could have been scrutinised.
Poor Fiscal Management
The budget figures indicate that there is no room for fiscal management with the government. The budget expects revenue of Rs. 500 crore from probable dump handlings, and duty-paid mining cargo movement and seems difficult given the virus scare in Goa’s biggest Market for our low grade iron-ore in China.
Without bothering to explain the borrowing of Rs. 2,500 crores, boasting about the revenue surplus makes the entire exercise utterly unrealistic. For the year 2020-21, capital spending as per budget at glance is Rs 4941.39 crore and lending is Rs 70.58 crore, amounting to Rs 5011.97 crores . To finance this projected revenue surplus and the non-debt capital receipts, which is Rs 353.61 crore and Rs 9.68 crore respectively, will together gross up only Rs 363.29 crore. Thus the actual fiscal deficit will work out to over Rs. 4500 crore which is over and above what is projected by underreporting it at 2.01 percent, at Rs. 1856 crore.
This hidden deficit in our risks to undercut the ensuing budgeted capital expenditure in 2020-21 by Rs. 2650 crores making it actually look worth Rs. 18,350 crore compared to the last budget 2019-20. In this light the projected capital expenditure for the next year will be hardly Rs. 2200 crores and not Rs. 4900 crore, as projected in the budget.
In desperate measures to make up additional revenue, budget has increased prices of all the services that could affect tourism, and the cost of living. Unfortunately no concrete provision is seen for recasting and restructuring the state loans given consistent drop in repo rates over last two years. There also seems to be no immediate boost to infrastructure development, e-governance, inter-departmental online connectivity, warehousing and logistic-support and employment generation. Much of the remainder part of the budget on announcements like that of CZMA, single window, administrative reforms, Convention centre etc remains a cut and paste exercise from last previous 4-5 budget texts.
Only ray of hope
Given the slower growth in the current and in most probability, the future slump in economy the only optimism for the upcoming year comes from the fact that the State expects to receive around 55 percent increase in grants from the Centre by the current year end 2019-20 compared to what it budgeted in the last year.
It is a fact that the State has received a bountiful from the Centre through an increase in Grant-in aid by almost 137 percent in last 2 years from actual receipt of Rs. 814 crores in 2017-18, to expected (revised) receipt of Rs. 1935 crore crores in 2019-20.
Even if the government actually succeeds in receiving this expected sum from the Centre, the State is expecting a further increase of 22 percent in this aid for the ensuing year. This is very optimistic expectation, and may be possible only if the same-party government continues to remain in power in the State as well as the Centre. Luck forbid, if this expected help doesn’t come, the State coffers will be holed by another Rs 1000 crores.
In the ensuing year it is expected that our Hon CM derives a new ‘avatar’ of being a disciplined administrator who will deal economic issues with an iron fist and firm conviction. Hon CM will have to administer Goa’s economy with absolute fiscal prudence, financial probity and leadership potency. Let’s wish him best for this most important test.