Corrective efforts would go waste

Updated: Jul 31 2006, 05:30am hrs
Debt-ridden Maharashtra governments initiatives for a revenue surplus budget may go for a toss, thanks to the Centres nod for the 6th Pay Commission. The Congress-led government is struggling to achieve a revenue surplus budget in the current fiscal. It has yet to assess the potential burden arising out of the commissions implications for 20 lakh employees and also for the staff of its various undertakings.

The state government recently communicated serious apprehensions to the Centre on the subject, in light of its efforts to revive deteriorating finances. Positive signals are barely beginning to emerge.

A senior government official told FE that the state is projecting a revenue surplus of Rs 305.85 crore for the fiscal, and a decline in debt as a percentage of revenue receipts from 29.96% to 28.25%. The Centres move comes at a time when the government has yet to get over its woes from the implementation of the 5th Pay Commission recommendations 1998-99 onwards.

According to government data, its salary related expenses increased by Rs 3,000 crore per year since 1999, apart from the one-time-settlement of Rs 7,000 crore as required by that commission.

For the state reeling under severe financial crunch until 2005-06, Expenditure trajectories had shot up on account of the 5th Commissions award in 1998-99. Salaries went up by 30% and the salary bill climbed to 69.49% of revenue receipts that year. So great was the shock that the cash balance available on April 1, 1999 was wiped out and the state ended with a negative balance of Rs 1,676.82 crore by March 31, 2000. And, huge liabilities have still not been discharged, government sources said.

The first Maharashtra State Development Report (MSDR) recently released by four independent research institutions under the aegis of the Planning Commission had warned the state to strictly follow fiscal correction. The report had revealed that capital and development outlays had gone down significantly between 1994-95 and 2001-02 (RE). While revenue expenditure grew at an average rate of 15% per annum over this period, capital outlays increased at an average rate of just 4%. Thus, the state has been on a borrowing spree over this period primarily to finance current consumption (to pay for the growing salaries, pensions and interest payments), which accounted for 80% of total revenues.

Sources said, recent initiatives to correct the trend could go waste, following the implementation of the 6th Pay Commission recommendations.

The government is expected to appoint a committee of senior officials to assess the possible impact and to suggest how to support it without violating its own Fiscal Responsibility Act.