Euphoric Budgeting ~ I
Rajendra Kakodkar
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To implement policies and projects beneficial to citizens is the duty of every government and there is no need to praise it for that. Just because previous rulers were corrupt and selfish, it does not justify retrograde policies on the part of any government. This critique is solely aimed to bring to the notice of the government and administration, a reasoned viewpoint for their consideration and also to make the public at large aware of the nitty-gritty involved in budgets.
Government revenues sometimes rise fast and also languish at times. This is because these revenues are extracted from the public whose prosperity keeps changing. To understand budgets prudently, one must first understand that the law of averages always prevails. A mountain is followed by a valley. A phenomenal growth or boom ought to be followed by a trough or stagnation. Policy makers must therefore never lose sight of long-term growth over a full cycle of boom and trough.
Over the years, China grew at a phenomenal pace. Now what is the benchmark for growth to be phenomenal? Year wise China grew between 7.2% and 13.6% and compound-averaged just 12% per year. Many regions in their critical developmental stage peaked around 10%. On achieving extraordinarily high growth, a fiscally prudent policy maker does not add fuel to the euphoria. Rather, it becomes cautious and quickly adjusts monetary and fiscal policies to cool down the hype.
Law of averages ignored
Let us now review Goa revenues over the past seven years. In 2004-05 Goa’s tax and non-tax revenue was Rs 1748 cr and revenue expenditure was Rs 1943 cr. In 2011-12 the same were Rs 5545 cr and Rs 5482 cr respectively. This means over a seven-year boom, Goa’s revenue and expenditure grew at a compounded average growth rate of 17%, which by any global yardstick is super-phenomenal. Such a boom can never sustain for long and a correction was due.
Exactly at that juncture, a new government was installed with a chief minister, who in comparison with his peers had a much better understanding of Goa’s problems and resources to innovate solutions. The public were so disenchanted with Congress politicians that they forgetting everything else, voted to trounce them.
Manohar Parrikar’s manifesto was heavy on doles to petrol, consumers, girls, women et al, which was very simple for the common man to understand. Public expectations had soared. Perhaps under the spell of an unprecedented mandate, the chief minister ignored the looming correction and led Goans to believe he can defy gravity and the law of averages. He further hiked revenue and expenditure in the 2012-13 budget by a further 20% instead of a realistic 10%. His budget speech started, “Speaker Sir, the election result has made me speechless”. Any person making a budget in such an overwhelmed condition is bound to lose sight of long term prudence. Unable to harness spending, taxes were hiked 26% in 2012-13. This year too taxes have been hiked further by 14%. Such steep increases especially on tourism, trading and construction sectors can prove counterproductive. Not only that, he acted that way. The restraint in spending should have begun in 2010-11. But the then CM got an unexpected Rs 900 cr lottery from the centre by way of increase in mining royalties. Indeed it was a lottery because neither the Goa CM nor the leader of opposition ever sought this increase and the centre was forced to succumb to the relentless insistence of the Orissa CM.
Precarious debt woes
The general perception is that debt is bad. This is not always true for the government of a welfare state. This is because debt is generally used for capital expenditure especially in infrastructure, which is supposed to improve efficiency and thus benefit the state much more than the debt and interest thereof. However debt is a poison for financing doles or
revenue expenses.
In 2007, Goa had a debt of Rs 4690 cr. The Digambar Kamat government added around Rs 450 cr every year making it Rs 6872 cr at the end of his tenure. The budget papers state that during 2012-13 Manohar Parrikar added a further Rs 1094 cr making it Rs 7966 cr or 30% of gross state domestic product (GSDP). But the finer details reveal that Parrikar has left a spending of Rs 664 cr without bridging it with income or debt. This means that contractors and suppliers have financed this gap at the moment. Summarily, the debt burden as on March 31, 2013 is Rs 8631 cr or 35% of GSDP. This is alarming.
In the 2013-14 Budget, the CM has envisaged additional debt of Rs 1365 cr and has left an expenditure gap of Rs 856 cr without financing. Thus on March 31, 2014, the debt and creditors are expected to surge to Rs 10,852 cr. Even considering 12% growth, GDP can rise to Rs 27,160 cr. With debt to GDP ratio at 40%, Goa’s finances are programmed to lean precariously over the Aguada cliff.
White elephant
A bigger worry is the white elephant of government employees. During 2013-14, Rs 2357 cr is budgeted for their salaries and pension. This is almost 35% of state revenues and Rs 80,000 per household. Can the CM or the employees’ union answer how much each household benefits in return? These salaries are bound to keep rising with time and pinch pockets even further.
The seventh pay commission may make things worse. It is high time ruling and opposition parties unite and impose a 10-year moratorium over recruitment, outsource non-regulatory services and chalk out a clear cut plan to limit salaries and pension to 20% of revenues within 10 years. Why should people be made to run to government offices to obtain birth certificates over and over again? Why should staff waste hours and days to issue a birth certificate? Is not the birth date indicated on the voter card?
Another worry is the extraordinarily large number of peons, clerks, drivers, helpers and hamals on the rolls. Peons are used for filing papers, retrieving files and all sorts of things that are now done by officers themselves in the private sector. This is sub-optimal utilization of manpower. The chauffeur-driven government vehicle should be given to a few top officials. The rest should self-drive or hire a vehicle. Attempt needs to be made to train and upgrade such staff to do better jobs.
(To be concluded)
The writer is a corporate
management consultant
