Goa Chief Minister has announced that the upcoming state budget will be "futuristic & realistic" and has hinted at focused attention to specific sectors. The successful implementation of various budgetary proposals depends on the state's fiscal health - the ability of the state to mobilise enough revenues and spend it efficiently. Thus, it is imperative to look at the fiscal performance of Goa. This article attempts to analyse the state's fiscal concerns and seeks to figure out solutions.
The total revenue receipts (RR) of states consists of states' “own revenues” (i.e. the taxes and non-taxes it mobilises) and the “transfers” from the union government to the states (i.e. grants and states' share in the union taxes). Goa's own revenue consistently declined between 2017-2021. In 2020-21 (based on the actual accounts data as opposed to projections), it was 10.69% lower than in 2017-18. The share of Goa's own revenue to the total revenue has increased consistently, from 80.9% in 2014-15 to 65.5% in the 2022-23 Budget Estimates (Figure 1).
Goa's own revenue is expected to grow at almost 3% slower than the expected total revenue. This implies, an increased union government's role in meeting the state's revenue requirements. This can also be interpreted as the state's growing dependence on the union government for its revenue requirements. Higher dependence on the Union Government means greater uncertainty for the state to provide various developmental services leading to higher vulnerability.
The ratio of a state's revenue receipts to its Gross State Domestic Product (GSDP) shows how well the state mobilises its revenues. A higher ratio implies better capacity of the state in mobilising resources through taxes like sales, trade, vehicles, excise etc and non-taxes like interest receipts, departmental receipts, dividend profits etc. Though Goa's RR to GSDP is projected to increase in 2021-23, it consistently declined in 2014-21 from 18.9% to 15.1%. The decline reflects a weakening revenue mobilisation capacity. (Figure 2)
Own Tax Revenues
The most significant component of a state's revenue is its own tax revenues (OTR). A state's OTR to GSDP ratio indicates how well it has leveraged its capacity to raise tax revenues. Goa performs better than most states in terms of OTR/GSDP ratio, i.e. its OTR/GSDP ratio is higher than India's all-state average. But Goa's OTR/GSDP ratio declined between 2015-21. OTR mobilisation is expected to increase in 2021-22 (7.3%) and 2022-23 (7.8%), but it will still be lower than the OTR/GSDP ratio of 2014-15 (9.6%). A CAG state finances audit report pointed out that the state's own tax revenue collection has been lower than the 15th Finance Commission projections and Budget Estimates by 46% and 29%, respectively. The tax revenue decline was mostly because of a declining trend in tax collection under SGST, stamp duty and registration and land revenue.
Own Non-Tax Revenues
The other significant component of the state's own revenue are the non-tax revenues (ONTR). Goa's ONTR to GSDP ratio tends to be higher than the all-state average. But it declined significantly between 2014-15 to 2020-21. The CAG state finances audit report highlighted that the actual non-tax revenues mobilised are 57% and 24% lower than the 15th Finance Commission and Budget Estimates. Lower tax and non-tax revenue mobilisation, as compared to the projections, hint at a weaker capacity of the states to raise resources.
The revenue receipts of a state are used to provide various services (i.e. economic services like power, irrigation etc., social services like health, education etc., general services like law and order etc.) and meet payment obligations (i.e. salaries and pensions, interest payments). These payment obligations, also called committed expenditures, have the first charge on government resources. Higher committed expenditure implies lesser resources for development expenditure. Between 2016-21, the committed expenditure exhibited an increasing trend and in 2020-21 constituted 57% of revenue receipts. If the trend continues, the state will have lesser flexibility in providing various development services.
The capital expenditure of a state is its expenditure on the creation of fixed infrastructure assets such as roads, buildings etc. Higher investments in infrastructure have high multiplier effects, i.e. they provide conditions for higher growth and employment opportunities. The share of Capital Expenditure to Total Expenditure (CE/TE) declined between 2017-2021 and was lower than the average spending of other general category states. The CE/TE is projected to increase in 2021-22 and 2022-23. However, the 2022-23 budgetary estimates for capital expenditure was 29% lower than the 2021-22 revised estimates.
To ensure prudent fiscal management and stability, the Goa Fiscal Responsibility and Budget Management norms mandate that the state eliminate revenue deficits (RD) and maintain the fiscal deficit(FD) & outstanding liabilities(OL) within 3% and 25% of GSDP, respectively. For the year 2020-21, the FD target was changed to 5%. Goa has been running a revenue deficit since 2019-20. The 2022-23 budget estimates projected a small revenue surplus. Goa was able to meet its FD targets between 2016-2021. But the 2021-22 revised FD estimates at 7.53% breached the GFRBM norms. The outstanding liabilities have consistently increased and have breached the norms (Figure 3 - 29.5% in 2014-15 to 39.6% in 2022-23 Budget Estimates). The CAG audit points out that the OL is even higher if off-budget fiscal operations are taken into account. Higher outstanding liabilities imply greater obligations on future generations to pay off the debt. It reduces flexibility to incur development expenditure. It crowds out private investments limiting growth and employment opportunities.
The way ahead
Goa must improve its revenue situation and reduce its dependence on the union government. It must augment its revenue through both taxes and non-taxes. Using borrowed funds to meet current consumption is not sustainable. The CAG audit found delayed realisation of revenue. The state must ensure quick recovery of the same. Reducing support to non-functioning state public sector enterprises can also help reduce Revenue Deficits and Outstanding Liabilities of the state.
Considering the Outstanding Liabilities have been increasing and are growing faster than the GSDP, the government must come up with a debt management strategy. The strategy should prioritise the reduction of OL/GSDP ratio with time and then limit it to 25%. At present, Goa doesn't have a Medium Term Fiscal Plan (MTFP), like most other states do. The MTFP statement is released along with the budget, and it has revenue, deficit, and growth projections for the concerned states. An MTFP for Goa can act as a guiding light and fiscal accountability mechanism for the government.
(Sarthak Pradhan is an Assistant Professor at the Takshashila Institution. The research for this article was made possible by The International Centre Goa Research Grants (ICGRG))