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State Budget 2007-08: Maharashtra
No Reforms on the Agenda
Savita Kulkarni*
With the state economy registering a robust growth, this was the time for the finance minister to
launch much-needed reforms. But he has chosen to deliver no more than an accounts and
expenditure statement.
*Email: [email protected]
Maharashtra`s economy is growing at the more or less the same pace as country’s
economy. This would have been the stage for major reforms and policy changes.
Unfortunately state finance Minister Jayant Patil has stuck to the straight and narrow
path that might in fact lead to political and economic instability in coming times. [See
http://www.esocialsciences.com/articles/displayArticles.asp?Article_ID=921 for Budget
speech/papers]
The state economy registered a robust growth of 9.2 per cent in 2005-06, and expected
to register 9.3 per cent in subsequent year, according to recently released the Economic
Survey of Maharashtra. The expectations of the state’s sustainable growth in future were
further strengthened by Rs 5.1 billion surplus budget presented by Maharashtra finance
minister on March , 2007. The minister’s emphasis was on strengthening the existing
economic system and allocating the available resources to every sector. Thus, he neither
favoured any particular sector with liberal funding, nor did he disappoint anyone.
He has tried to raise revenue collections by bringing in tobacco and tobacco products
(excluding bidies) under VAT net. At the same time, citing rising inflation pressure as
well as opposition of traders` lobbies, he has offered temporary relief by keeping
essential commodities away from the net.
However, when judged at performance of previous year, the annual budget 2007-08
does not support an optimistic view about the sustainable economic growth. Despite
earlier promises, the State government has ended the year with a sizable deficit
primarily on the back of huge power crisis. The condition is likely to get even worse
this year. The demand and supply gap for electricity has widened to 5700 MW in the
highly industrialized state. The resultant load shedding critically impacts the state’s
economic competitiveness and sustainability of industrial growth in future. Though the
minister read out a long list of proposed projects for electricity generation but did not
provide information about their funding sources or deadlines. On an aggregate, he has
kept only Rs 6.92 billion for additional power generation. In fact, it is more likely that
government may need extra provisions for electricity-buying, which can put pressure on
the government’s treasury.
Industrialists and investors were expecting more clarifications on the Special Economic
Zones policy for the state, but the budget did not fulfil their expectations. Such delays in
the businesses, not only increases transactions cost but also hampers the credibility of
eSS Editorials/Budget 2007-08
March 2007
the state. This will undoubtedly affect the investment flow in the state and therefore the
economic growth in future.
Moreover, the budget which can provide guidelines on state’s taxation policy, did not
talk about `Octroi`. Octroi has to be abolished from April 1, 2010, as the Centre is
introducing a Goods and Service tax (GST). The budget was expected to unveil a roadmap to phase out the tax if not scrapping it at one go. The minister however has kept the
government’s plan under wraps just yet.
On the infrastructure front also the budget has failed to create optimist picture. For the
project approved by Jawaharlal Nehru National Urban Renewal Mission (JNNURM),
the budget has made a meagre provision of Rs 4 billion. The work on Metro railway
was hanging fire for want of viability gap funding. The state government did not
sanction the viability gap funding of Rs 3.5 billion for the first corridor of phase I of the
project.
The various parts of the rural Maharashtra received only small (insufficient) bit of the
pie in spite of sensitivity or severity of the problem. Increasing number of the farmers`
suicides is a growing concern of the government, and realizing the failure of current
policies to correct the cycle, the finance minister has disappointed all by again offering
packages and not mechanism to solve the problem at its root. Provisions for various
irrigation projects, insurance scheme, smaller assistance to flood affected farmers and
other small-medium farmers are too inadequate to change the current unfortunate
condition of rural India.
Though, the finance minister has highlighted that the per capita income (PCI) of the
state has been rising and has left the country’s PCI behind, the states is suffering from
extreme regional disparities. Such regional disparities invite many social and economic
problems, hindering the growth and development process in future.
Thus, the state needs more directed and focused reforms on economic and social issues
for balanced development, which can maintain the 9 per cent plus growth.
Unfortunately, the recent budget put forth income-expenditure account of the state and
lacks such reforms.
eSS Editorials/Budget 2007-08
March 2007
eSS Editorials/Budget 2007-08
March 2007