Fiscal Status of Haryana: An Analysis


RUCHI
Research Scholar, Department of Economics, M.D. University Rohtak

PREETI DABAS
Student, Department of Economics,M.D. University Rohtak


Abstract
Deficits determine the fiscal health and financial strength of any economy or state. This paper attempts to highlight the various fiscal indicators of Centre and Haryana state government and examine the significance of expenditure and public debt on fiscal deficit of Haryana ranging the time period from 2004-05 to 2016-17. To fulfil the above said objectives, secondary data has been collected from various Statistical Abstracts of Haryana; Department of Economic & Statistical Analysis, Haryana; Economic Survey of Haryana; Central Statistics Office, India; and Trading Economics as well. In order to satisfy the objectives, the study used simple descriptive tools like Least Square Growth Rate, Coefficient of Variation (C.V.) for estimating the instability among the data. The study revealed a higher value of C.V. for borrowings which indicates that government borrows more to repay the old debts. Increment in government borrowings is mainly due to increase in non-plan expenditure as well as social infrastructure; which is not a positive sign since it ultimately results in rise in government fiscal deficit. Hence, need of the hour is to reduce public expenditure, cut down the subsidies, improve tax structure and reduce interest payments on past debt.
Key words: Deficits, Expenditure, FRBM Act, Trends, Growth rate.
Introduction:-
Fiscal Deficit occurs when the total expenditure of the government over the revenue that it generates except from the borrowings exceeds. Government covers expenditure through borrowings due to shortfall in receipts; therefore, borrowings indicate that government borrows more to repay the old debts. Generally, fiscal deficit takes place due to either revenue deficit or a main hike in capital expenditure. Capital expenditure either creates long-term asset such as bridges, factories, roads, transports, irrigation networks, health, education, water supply and other hard infrastructure etc. Net Fiscal Deficit can be arrived at by deducting net domestic lending from gross fiscal deficit (Gupta, J.R. 2011). Economist’s views vary widely on fiscal deficit. According to the eminent economist J.M. Keynes, a deficit prevents an economy from falling into recession. On the other hand, another school of thought postulates that fiscal deficit should be nil.
To keep a check on deficits, manage them and to bring fiscal discipline; government enacted an act, called Fiscal Responsibility and Budget Management (FRBM) Act in 2003.  Its chief objectives are:
·         to attain inter-generational equity in fiscal management;
·         long-term fiscal and macro-economic stability;
·         better coordination between fiscal and monetary policies; and
·         to lay down transparent fiscal operations.
The FRBM rules put limits on fiscal and revenue deficits. RBI is also given power under FRBM Act for taking measures to control inflation.
Haryana Profile
Haryana got the title of statehood on November 1st, 1966. It has geographical spread of 44,212 sq. km (1.2 per cent of India’s total area) and a population of 27.76 million (2.09 percent of India’s total population) with density of 573 per sq. km. For administrative purposes the state is divided into 6 Divisions (Ambala, Hisar, Rohtak, Gurgaon, Karnal, and Faridabad), 22 districts, 71 sub-divisions, 93 tahsils, 49 sub-tahsils, 140 development blocks, 154 towns and 6841 inhabited villages. There are 90 Legislative Assembly seats, 10 Parliamentary seats and there is no Legislative Council in Haryana. According to census 2011, 65 per cent of people live in rural area; whereas, the rest 35 per cent in urban area. Literacy rate for Haryana is 75.55 percent and the sex ratio stands at 879, that is, there are 879 females per 1000 males (Statistical Abstract of Haryana 2015-16).
Haryana is one of the most progressive states of north India. It has been an established state in carrying out fiscal reforms and fiscal management is recognized as one of the best in the country. As per the directive of the 14th Finance Commission, the state was to achieve a 2.47 per cent fiscal deficit in 2016-17 against the target was 3 per cent of GSDP which is well within the predetermined limits (Economic Survey of Haryana 2016-17).
Objectives of study: -
1.      To highlight the trends of different types of deficits and their significance;
2.      To examine the significance of expenditure and public debt on fiscal deficit.
Data and Research Methodology: -
For the analysis purpose, this paper uses time series data from 2004-05 to 2016-17 on the variables fiscal deficit, revenue deficit, growth rate, expenditure and public debt of Haryana. The year 2003 has been a pivotal one in the history of public finance since it was the year of enactment of FRBM Act. To fulfil the objectives of the study secondary data has been drawn from secondary sources such as RBI handbook of Statistics on State Government Finances; Department of Economic & Statistical Analysis, Haryana, Various Statistical Abstract of Haryana, Economic Survey of Haryana (2016-17) and other relevant information is gathered from journals, internet, research papers and newspaper reports.
Analysis of growth rates: -
Based on the availability of data, the simple statistical tools are applied for the analysis of the secondary data about Least Square Growth Rate, Coefficient of Variation of Haryana expenditure and public debt from 2004-05 to 2016-17.
Ø  Least Square Growth Rate Formula:-
The method of least square growth rate is used when time series data is given for a long time series. We can’t estimate the growth rate when half of the observations in a series are missing. Linear regression trend line is fitted to the logarithmic annual values of the variable in the relevant period to estimate the least-squares growth rate, r. The form of the regression equation is as under:
Yt = Y0 (1+r)T………………….  (1)
Where,
Yt = Current year value
Y0 = Base year value
t = time period, t=1, 2, 3, 4,………,n.
Taking log on both sides of equation 1; we get
Log Yt= log Y0+ tlogb
b = (1+r)
Yt* = Y0*+tB*
Yt* = log Yt
Y0* = log Y0
B* = logb
B* = log (1+r)
Taking Antilog on both sides;
Antilog B* = (1+r)
r = AntilogB* - 1
Ø  Instability Analysis: -
Instability is simply the deviation from mean and the researchers in their studies have used the coefficient of variation (C.V. %) as a tool for estimating the instability. Coefficient of Variation is calculated by using the following formula:-
                         Standard deviation
 C.V. (%) =    ------------------------------X 100
                                  Mean

India’s GDP versus Haryana’s GSDP
The Gross State Domestic Product (GSDP) is defined as the value of goods and services (in monetary terms) produced within the boundaries of the state during a given time period (which is usually a financial year).
Figure 1: India’s GDP and Haryana’s GSDP growth rates
Source: Department of Economic & Statistical Analysis, Central Statistics Office, India;
The above graphical representation shows a comparative trend of India’s GDP and Haryana’s GSDP growth rates at constant prices. It can be depicted from the figure that the growth rate of Haryana’s has fluctuated more than that of India’s over the time period which indicates to the instability due to poor policy implementation.
Different types of Deficits, Their Significance and Trends
The term ‘deficit’ implies excess of expenditure over the revenue. Different deficits have their different implications. The major ones are discussed below.
Budgetary Deficit- It represents that part of the government’s deficit which is financed through the short-term borrowings which could be from the RBI (through the net issuance of short-term treasury bills) or from other sources (Gupta, J.R. 2011).


Figure 2: Budgetary Deficit (as percentage of GDP)
Source:  Trading Economics also available at https://tradingeconomics.com/
The above figure shows the budgetary deficit (as percentage of GDP) over the past ten years. The figure reveals that the trend has been declining after once having reached a high (7.8 per cent) in 2009. However, the average for the same during the period 1991-2016 has been 3.86 per cent with the lowest (2.04) being recorded in the year 1997. It was 3.5 per cent of GDP in the last year. Among the BRICS countries, India has the lowest budgetary deficit.
The data from following table speaks that Haryana has had a fiscal deficit continuously; 2006-07 being the exception whereas that of Centre’s throughout had deficit. As there has been pressure on Haryana state to set up hard infrastructure in National Capital Region (NCR), so the state has to often go through financial stress. The fiscal deficit target for the centre for the financial year 2017-18 is 3.0 per cent and it is to be brought down to 2.5 per cent by 2023 in a phased manner.



Table-1
Trends in Fiscal and Revenue Deficits as a percentage of GDP / GSDP
                                                                                                                                                   (Per cent)
Year
Fiscal Deficit / Surplus
Revenue Deficit / Surplus
Centre
Haryana
Centre
Haryana
2004-05
-3.88
1.26
-2.42
-0.27
2005-06
-3.96
0.26
-2.50
+1.11
2006-07
-3.32
+0.92
-1.87
+1.24
2007-08
-2.54
0.83
-1.05
+1.47
2008-09
-5.99
3.59
-4.50
-1.14
2009-10
-6.46
4.51
-5.23
-1.91
2010-11
-4.79
2.75
-3.24
-1.04
2011-12
-5.70
2.33
-4.46
-0.47
2012-13
-4.91
3.00
-3.65
-1.29
2013-14
-4.43
2.12
-3.15
-0.98
2014-15
-4.09
2.88
-2.89
1.90
2015-16
-3.94
2.92
-2.50
1.60
2016-17
-3.50
2.47
-2.30
1.33
                     Source: State Budget Documents and Finance Accounts of AG, Haryana.
Revenue Deficit is the excess of revenue expenditure over revenue receipts. A positive revenue deficit connotes that the government is resorting to borrowing to finance current consumption. In case of a state government, it implies that the state government lacks the adequacy of funds to meet its revenue expenditure (which is committed) and thus the gap is bridged through borrowings and consequently, smaller amount of funds are available for developmental purpose (Gupta, J.R. 2011). Revenue Deficit for the Centre has been greater than that of Haryana since Centre has to borrow largely for revenue spending and current consumption like salaries and wages. The revenue deficit for the year 2017-18 has been pegged at 1.9 per cent. The panel under FRBM Act has focused on to bring it to 0.8 per cent by 2023.
From the above table, it can be seen that Haryana has adhered to the 3 per cent target under the State-level FRBM Act whereas Centre has failed to do so. The fiscal consolidation of the Centre is more than offset by expansion of the states.
Table-2
Haryana’s Expenditure on Interest Payments, Pension and Salaries
(Rs. In Crore)
Year
Interest Payments
Pension Payments
Salaries
Total Revenue Receipts
Total Revenue Expenditure
2004-05
2235
902
3658
11149
11407
2005-06
2100
1003
3725
13853
12640
2006-07
2265
1173
3919
17952
16362
2007-08
2346
1398
4434
19751
17527
2008-09
2339
1614
6250
18452
20535
2009-10
2737
2390
8241
20923
25257
2010-11
3319
3094
9523
25564
28310
2011-12
4001
3204
9728
30558
32015
2012-13
4744
3636
10615
33634
38072
2013-14
5850
4169
11292
38012
41887
2014-15
6928
4602
13296
40799
49118
2015-16
8284
5413
13984
54167
64861
2016-17
10490
6009
17087
62955
75236
Average
4433.69
2969.77
8904
29828.38
33325.15
S.D
2705.95
1728.19
4362.79
15720.82
19994.67
C.V
61.03
58.19
49
52.70
60
LSGR
15%
18%
15%
14%
17%
Source: Various Statistical Abstract of Haryana
The above table shows that pension grew at more than 18 per cent rate which is higher than that of salaries and interest payments. The C.V. of interest payments showed greater variation as in comparison to others which reflects instability in the interest payments during the time period. Also, high instability in total revenue expenditure is revealed as compared to total revenue receipts implying that government expenditure fluctuated more than the revenue receipts. Thereby, the increasing proportion of salaries, pension and interest payments in revenue expenditure restricted the state from attaining a revenue surplus. Since, total revenue receipts being more than total revenue expenditure for just four years points to the fact that revenue expenditure grew at a faster pace than the revenue receipts, implying an unfavorable situation for revenue.
Table-3
Revenue and Capital Expenditure of the Haryana Government
                                                                                                                                                  (Rs. In Crore)
Year
Revenue Expenditure
Capital Expenditure

2004-05
11407
1105
2005-06
12640
1789
2006-07
16362
2612
2007-08
17527
3712
2008-09
20535
4834
2009-10
25257
6048
2010-11
28310
4753
2011-12
32015
5999
2012-13
38072
6284
2013-14
41887
4710
2014-15
49118
4558
2015-16
64861
20177
2016-17
75236
13546
Average
33325.15
6163.62
S.D
19994.67
5185.95
C.V
60
84.14
LSGR
17%
18%
Source: Various Statistical Abstract of Haryana
One of the classifications of the government expenditure is revenue expenditure and capital expenditure. All that expenditure which neither creates any asset nor causes any reduction in liability but goes for maintenance and operation purpose, recurring salary expenditure is termed as revenue expenditure; whereas on the other hand, capital expenditure either creates an asset or a reduction in liability with an objective to increase the economy’s capacity to produce goods and services via public investment in infrastructure such as bridges, roads, transports, irrigation networks, health, education, water supply etc. In fact, in order to meet the increasing demand of a developing state like Haryana, the capital expenditure must rise constantly.

Table-4
Haryana’s Public Debt
(Rs. In Crore)
Year
Loans Raised
(1)

Repayments
(2)
Net Borrowings
(1-2)
Outstanding Debt Liabilities
2004-05
4474
3014
1460
23320
2005-06
3349
1108
2241
26268
2006-07
2012
1114
898
27514
2007-08
844
841
3.00
28649
2008-09
3888
1293
2596
31817
2009-10
8455
2746
5709
39330
2010-11
10513
4641
5872
46443
2011-12
11741
5011
6730
50688
2012-13
15560
6298
9262
60159
2013-14
17713
8077
9636
71305
2014-15
18859
8227
10632
84409
2015-16
38941
8580
30361
98985
2016-17
34726
9678
25048
115904
Average
12219.57
4330.43
8496
54214.69
S.D
12134.95
3344.93
9262.69
30203.67
C.V
99.30
77.24
109.02
55.71
LSGR
29%
22%
44%
15%
Source: Various Statistical Abstract of Haryana
The above table indicates that value of Coefficient of Variation (C.V.) of the net borrowings was as high as 109.02 per cent followed by debts, repayments and outstanding debt liabilities; with the value 99.30 per cent, 77.24 per cent and 55.71 per cent respectively. Higher value of C.V. for borrowings shows that government borrows more to repay the old debts. Government borrowings increased due to increase in non-plan expenditure as well as social infrastructure; which is not a good sign for government debt to be sustainable in the long run. However, so long as debt is utilized for private investment in building up basic economic infrastructure; it will continue to enhance economic activities and will also result in substantial positive externalities. But, as the trend shows that borrowings have been used to finance the present consumption which is shown by non-plan revenue outlay is unsustainable in long-run since it fails to generate income.
Haryana’s finances have been changing due to:
(a) Increased devolution of central taxes
(b) Rationalization of Centrally Sponsored Schemes
(c) Introduction of UDAY (Ujwal DISCOM Assurance Yojana) scheme
Conclusion:
Of all the deficits discussed above, fiscal deficit is the key indicator since it is often used as a measure of fiscal health of the economy. The lesser it is, the better for the state of the economy. Hence, there have been efforts to cut down it, like as to reduce public expenditure, cut down the subsidies, reforms in Tax structure, to reduce interest payments on past debt. The target by N.K. Singh Panel under FRBM Act has been set to achieve fiscal deficit to 2.5 per cent, revenue deficit to 0.8 per cent and completely nullify effective revenue deficit by 2023.
References:
Ø  Government of Haryana (2015): White Paper (Part I), Finance Department.
Ø  Government of Haryana: Economic Survey of Haryana (2016-17), Planning Department.
Ø  Government of Haryana: Statistical Abstract of Haryana, Various Issues, Department of Economic & Statistical Analysis, Haryana.
Ø  Government of India: Data-book of Planning Commission
Ø  Gupta, J.R. (2011):“Public Economics in India - Theory and Practice”, ATLANTIC, Publishers & Distributors (P) LTD, ISBN: 978-81-269-1565-1.
Ø  Narayan, L. (2015): “Some Aspects of Haryana State Finances- An Exploratory Analysis”, Munich Personal RePEc Archive (MPRA), pp. 1-28, also available at http://mpra.ub.uni-muenchen.de/64697/.
Ø  Reserve Bank of India: State Finances, A Study of Budgets, Various Issues
Ø Trading Economics also available at https://tradingeconomics.com/
Ø  www.arthapedia.in





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