In her seventh Budget, the Finance Minister has done a smart job. First, she assured the voters that their discontent about lack of youth employment has been heard loud and clear, without bothering about how the market would react to her Budget – the market, in fact, gave her a thumbs down.
She has also continued with her focus on infrastructure investments to create more jobs. Despite having larger collections of GST and a bonanza of unexpected dividends from the RBI, she resisted the temptation of populist expenditure and instead curtailed the fiscal deficit to 4.9 per cent of GDP from 5.1 per cent announced in the Interim Budget.
Even the largesse given to Andhra Pradesh and Bihar is linked to infrastructure projects rather than a liberal grant of untied funds at the discretion of the States through the “Special Category Status” demanded by the coalition partners whose support is essential for the government’s survival.
Andhra certainly has a case for special treatment, having only 46 per cent of revenue with 58 per cent of population of the undivided State, while it inherited a huge debt liability of ₹1.3 lakh crore.
The Congress had promised it the “special category Status” in 2014 along with other promises, but couldn’t fulfil any, having lost the election. Nitish Kumar has been demanding special category status for a long time to tackle Bihar’s backwardness and the INDI Alliance was luring him by promising the same, after the last election.
Past experience shows that grants to special category States was not backed by accountability or performance expectation from recipients and naturally led to massive wastage and leakages.
AP package
The packages announced for Andhra included ₹15,000 crore for developing Amaravati as the capital as promised in the Andhra Pradesh Reorganisation Act, 2013. But this money will come not from the Budget; it will be routed through “special financial support through multilateral development agencies” to be facilitated by the Centre, which in plain language means that the Centre will raise loans from multilateral development banks to finance this project, since the State cannot do so from a foreign lender, and it will be serviced by the state with more support assured in future. A smart thing for the Finance Minister to do.
There is also Budget support for Andhra for financing the completion of Polavaram Irrigation Project, declared a “national project” in the 2013 Act, and a lifeline for farmers. Funds have also been promised for water, power, railways and roads as well as for the backward regions of Rayalaseema, Prakasam and North Coastal Andhra, as required by the Act.
Budget speeches and proposals are usually vague about project details and the mode of their funding, and it is unclear how much the Andhra package will cost the Centre. Estimates go up to ₹65,000 crore, and how much of it will be financed through Central schemes, Centrally sponsored schemes or through loans are not clear at this stage.
Bihar funds
For Bihar, there is a little more clarity. Giving additional cash to a State incapable of using even the existing allocations would not make sense. The Finance Minister has instead provided capital for infrastructure projects that would create jobs in a State that needs it more than any other. A sum of ₹26,000 crore has been earmarked for infrastructure of highways and a bridge over the Ganga, ₹21,400 crore for a power plant and ₹11,500 crore for flood management, which will go to Bihar from the Budget, but mostly through Central sector projects which hopefully will have better fund utilisation and monitoring.
But new airports, medical colleges and sports infrastructure have also been promised, apparently with multilateral assistance that comes with stringent conditions and monitoring. Given Bihar’s dismal record in proper utilisation of capex funds as indicated by the collapse of 15 bridges during the last two months, effective monitoring of fund utilisation is crucial.
The Opposition appears to have succeeded in making people believe that these two States have hogged the entire Budget with other States being ignored, something the BJP has been unable to counter successfully. The BJP should drive home the point that the Centre has no territory other than UTs, and most of the ₹48 lakh crore expenditure in the Budget, of which capex alone is ₹11 lakh crore, will necessarily get spent in the States in one form or another (sans interest payments and pension).
The Budget includes railway, roadway, flood control and irrigation and other infrastructure projects in many States not specifically named by the Finance Minister in her speech.
The public financial management in the country has undergone substantial transformation from the UPA days, when funds would go to the States as Plan transfers — either for Central plans (CP) or Centrally sponsored schemes (CSS) — and about half of it through direct transfers outside State budgets, creating a distortion whose effect was devastating to public finances. Though direct transfers have now largely stopped, the CSS has not.
In fact, in the current Budget, 42 Centrally sponsored schemes are consuming ₹5 lakh crore whose economic rationale remains questionable.
The writer is Professor at Arun Jaitley National Institute of Financial Management, and a former DG at the CAG of India