that with what happens in our government. The state's revenue
receipts (income), which are projected to be approximately
Rs 27964 cr for the fiscal year 2003-04, will be hardly
enough to meet the revenue expenditure, projected to be
Rs 30372 cr. The state is actually borrowing to bridge the
gap between revenue receipts and revenue expenditure - i.e.
you have to borrow in order to meet your running expenditure
comprising of salaries, pensions, interest and subsidies.
In fact, the state's own revenues (excluding central grants)
are not even enough to pay for wages, pensions and interest
state's AFF shows that only 4261 cr, which is less than
10 % of the total expenditure of 42000 cr is earmarked for
capital expenditure. Capital expenditure is what creates
capital assets, which will spur economic growth in the future.
On the other hand the state's annual borrowing for the year
2003-04 is projected to be in the range of 7500 cr raising
the debt burden to about 57000 crores!
what are the real issues behind this whole smoke and mirrors
and exercise? The reality is that in the existing framework,
there is very little room for maneuvering and the state
(and for that matter the union also) is fast spiraling towards
a classic debt trap, where you borrow just to service the
old debt. This is a vicious cycle into which we cannot afford
to fall. In the current centralized setup, where the bulk
of the expenditure is going towards wages, how can the government
control spending, short of retrenching staff? How does the
government increase its revenues short of fleecing the state's
population? Will the people of the state be willing to burden
answer to all these questions lie in true decentralization.
While the economic dimensions of the crisis are well understood,
it is often not recognized that this is largely a governance
crisis. Fiscal deficits can only be addressed by significant
increase in revenues or reduction in costs. Revenues can
be raised painlessly only by very high, sustained growth
rates. As our infrastructure is weak and inadequate, and
as the productive potential of the bulk of the population
is shackled on account of low levels of literacy and poor
health care, there cannot be rapid growth on sustained basis.
more painful way of increasing revenues is higher taxation.
As much of the tax revenue and public expenditure do not
result in realizable public goods and services, citizens
resist and evade high taxation. With rampant corruption
in a centralized governance structure, there cannot be tax
compliance in high-tax regime, nor is high taxation politically
feasible in a liberal democracy without tangible improvement
in public services and community assets.
are two ways of reducing public expenditure - reduction
of wage bill and elimination of subsidies. Savings through
wage reduction or retrenchment of employees are very hard
to accomplish. In a centralized governance structure, no
government has the power or will to antagonise the vast
army of employees. In any case, the problems with public
employment are not the excessive number of workers and high
wages, but the wrong deployment and lack of accountability.
We have too many support staff and too few teachers and
health workers, and where public employment is in the right
sectors, there is hardly any effective delivery of services.
Subsidies cannot be eliminated unless the beneficiaries
are satisfied that the money so saved is improving the quality
of their lives in some other manner. In centralized structures
where such a link is not visible, de-subsidization is difficult.
All these factors make our fiscal crisis a highly intractable
problem in our centralized governance model.
fiscal crisis can be addressed only through effective and
far-reaching decentralization of power and citizen-centered
governance. We accept tax burden voluntarily only when we
see the link between the taxes we pay and the public services
we receive locally. Finally the vast army of employees can
be redeployed from areas where they are redundant to sectors
where they are needed only in local governance.
the truth is that unless there is a fundamental structural
change in the governance process, accompanied by true decentralization
and massive investments in infrastructure, health and education,
the state's economy is not going to improve. Whatever else
the state might attempt to do will at best be a smoke and
mirrors exercise and is nothing short of a farce.