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)
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 www.arthapedia.in