Defining the basic theme of his first budget as building an ‘Atmanirbhar’ or ‘self-reliant’ Madhya Pradesh, Finance Minister (FM) Jagdish Devda has started working towards achieving Chief Minister Shivraj Singh’s Chouhan’s pet project of ‘Atmanirbhar Madhya Pradesh’.
Has the FM followed up on his “theme” of the budget with a sound economic strategy?
One, the FM is right in his assessment that without rapid economic growth, the state cannot become self-reliant. In consequence, he has laid down a target of making the Madhya Pradesh economy worth Rs 10 trillion (which is equal to Rs 10 lakh crore) in a year’s time.
Would his budget proposals increase ‘the size of the pie’ or the state’s Gross Domestic Product (GDP) to Rs 10 trillion by 2022-23?
Economic theory tells us that stepping up government expenditure on socio-economic activities or “pump-priming” the economy would step up economic growth or increase the growth rate of GDP in an economy. Despite the severe economic hit taken by the state exchequer because of the Covid-19 pandemic, Devda has allocated a sum of Rs 217,123 crore as government spending in FY 2021-22; more than 20% of the spending that the state government had sanctioned in its 2019-20 budget.
Of this “government spending” what is particularly noteworthy is the priority that Devda has accorded to “capital spending” or “investment”. It may be underscored that classical economists like Adam Smith and Karl Marx and Development economists like Arthur Lewis, Ragnar Nurkse, Rosenstein Rodan, Harvey Leibenstein have all stressed importance of “capital accumulation” or “investment spending” in economic growth. The FM has earmarked Rs 44,152 crore as “capital spending” in the budget for the year 2021-22; up by a whopping 46% over the Rs 30,228 crore provided for in the state’s 2019-2020 budget. Clearly, Devda’s budgetary commitments spell hope for the state’s economy to touch the Rs 10 trillion mark by 2022-23.
What are the key sectors which would make any state, including the Madhya Pradesh economy, self-reliant? Infrastructure development tops the list. The FM has allocated a sum of Rs 38,300 crore for developing infrastructure in the state; a staggering increase of 47% over the Rs 26135 crores allotted in the 2020-21 budget. Of this total amount, the energy or electricity sector gets Rs 12184 crores, Public health engineering gets Rs 8659 crore, roads get Rs 7341 crore, water resources get Rs 6431 crore and the state’s crucial Narmada valley development gets Rs 3680 crore.
The farm sector is particularly vital for an agrarian economy like Madhya Pradesh. The sector has been allotted Rs 18577 crore in this year’s budget; up by a huge 44% over the Budget 2020-21 figures.
Education is another critical sector in building self-reliance. The budget provides Rs 30,796 crore (of which ‘school education’, which fosters development of literacy and basic skills in the young, gets Rs 25,953 crores!) for the entire education sector; an increase of 12% over the Budget 2020-21 figures.
A healthy and disease free population is crucial for self-reliant development in any state. The budget has provided for Rs 15890 crore to this sector; an almost 10% increase over the 2020-21 Budget
Both urban and rural development set the tone for fostering self-reliant progress. A sum of Rs 25,464 crore has been allocated for developing both these sectors in the coming year; up by 13% over the sum provided in the state’s 2020-21 budget.
Are the state’s “public debt” levels alarming as they are expected to touch Rs 233,115 crore or be 28.52% of the state’s GDP by March 31, 2021? Cumulatively speaking, yes! But if one were to overlook ‘past profligacy’ and focus on the ‘borrowings’ proposed in this budget for the year 2021-22, the figure is Rs 49463 crores. Debt, per se, is not bad. Economists analyse debts on the basis of two criterion; namely, inter-generational equity and sustainability.
If debts are used for spending on productive areas such as power, irrigation, roads etc the state’s economy would strengthen over time and the ‘future generations’ would benefit. And this is what Devda proposes to do out of the ‘borrowings’ in FY 2021-22. Of the Rs 49463 crores of ‘public debt’ to be incurred in 2021-22, Rs 44152 crore have been provided for ‘capital spending’; implying that 89% of the ‘debt’ or ‘borrowings’ is to be deployed on ‘productive spending’ conveying hope for the state’s “future generations”.
For the debt to be “sustainable”, the 11th Finance Commission had suggested that the interest – revenue receipts ratio must not exceed 18%. This ratio is only 12.72% for the year 2021-22 signifying that the debt levels of the state are “sustainable”.
And considering the widespread ramifications of the 2020-21 Covid-19 pandemic on the state’s economy, the state’s ‘resource mobilisation’ efforts have not been particularly bad. The state’s ‘own tax revenues’ in 2020-21 were Rs 53147 crore; falling by just Rs 2708 crore from the Rs 55855 crores collected in 2019-20. Likewise, the state’s ‘non-tax revenues’ in 2020-21 were Rs 9715 crore; decreasing by just Rs 634 crore from the Rs 10349 crore collected in 2019-20.
However, there is one area where the FM could have done much more. Given the adverse effect of the Covid-19 pandemic on employment and the fact that there is an estimated backlog of 25 lakh unemployed in the state, the FM should have launched a frontal attack on joblessness.
While he has announced creation of 24000 jobs for teachers and 4000 for police personnel, this is too little. A “big bang’ approach for creating jobs was needed at this juncture.
The manufacturing sector is one sector which creates bulk jobs for all categories of workers; namely, unskilled, semi-skilled and skilled. The FM should have announced some initiatives to rev up the manufacturing sector in the state. Tourism is another sector that has immense potential for jobs. Besides, the state has huge untapped potential in this sector. The FM should have unveiled a detailed roadmap for the development of this sector along with the necessary financial provisions.
The Micro, Small and Medium Enterprise (MSME) sector is another employment-intensive sector. The FM should have come out with special packages, concessions, tax rebates and subsidies to promote this sector.
C. Rajasekhar is the Former All India Convenor of the BJP’s Economic Cell.