Praveena Sharma
Goa’s finances have never been stretched so thin. If the government were to exercise economic wisdom then in the Budget of 2021-22, to be presented on Wednesday, they will have to prescribe bitter pills to get the State economy in the pink again. A tough task, given that the State goes to the Assembly polls early next year. And so, in all probability, they could end up handing out sugar lollies.
The shadow of the pandemic is likely to loom large over the State’s annual financial statement with budgetary estimates of debt and revenue expenditure for the current fiscal overshooting way beyond Rs 17,952 crore and Rs 12,977.42 crore. On the other hand, revenue receipts projected at Rs 13,331.03 crore during the same period will likely fall short by a huge margin.
Nilesh Borde, professor finance and strategy, Goa Business School, expects gross state domestic product (GSDP) to “contract” by as much as 25-30 per cent.
“GSDP is likely to shrink by 25-30 per cent at the least. It will come down by around Rs 27,000 crore. It simply means we will have GSDP of close to Rs 70-75,000 crore in the current fiscal,” said the faculty of the business school at the Goa University.
The government has estimated GSDP to grow at 8.68 per cent to Rs 92,260.53 crore this fiscal compared to Rs 84,889 crore in FY20. This is a slower growth rate compared to the 9.99 per cent recorded last fiscal. And as debt and GSDP race in opposite directions, debt-to-GSDP ratio is likely to deteriorate and shoot up higher than 19.46 per cent projected in last year’s budget. In 2014, it had moved up to as high as 25.15. Economists see it swinging back to that level or even higher than that.
Debt is Good
Nilesh Borde expects State borrowings to jump higher, but he believes it would be a good move in today’s scenario of declining interest rates. He recommends the government should raise new debts to service old debts to take advantage of prevailing lower interest rates.
“Higher borrowings is not bothering me because the cost of borrowings is coming down. The government is borrowing at 5-6 per cent interest rate. It used to be somewhere between 9-11 per cent not long ago. If at the same interest rate, they are getting double the amount then why not borrow more?” he said.
For the current fiscal, budgetary estimation for interest payment is Rs 1756.19 crore.
Huge borrowing is likely to widen the State’s fiscal deficit, which is projected at 2 per cent of the GSDP at Rs 1856.65 crore for FY21. Borde sees it close to 5-5.50 per cent of the GSDP. Fiscal deficit is total borrowings the government needs to meet expenses.
All indicators are showing there could likely be a massive fall in revenue receipts in the current fiscal. State’s goods and services tax (GST) collection figures for this fiscal till August 2020 was just Rs 818.40 compared to Rs 3587.92 crore for the full year in 2019-20. Revenue from GST in the following months have also shown contraction over the last fiscal.
One of the major reasons for shrinking revenues is sharp drop in tourist arrivals into the State. As per Travel and Tourism Association of Goa (TTAG), the number of foreign and domestic tourists till August was barely 11.58 lakh compared to 80.64 lakh for the full previous fiscal. Such a slide in numbers will severely impact government revenues.
Mridula Goel, associate professor and group leader economics, BITS-Pilani, Goa, said Goa’s economy has been hit more than other States because the pandemic has caused major havoc on tourism sector.
Show Me the Money
Mridula Goel says government will have to look at innovative ways to raise revenues as the option of tax hikes is not on the table at the moment. She says the State could look at fund-raising tools like the Central government, which is getting people to plough back their money into government schemes.
“It’s giving me the sense that the government is desperate for funds and there’s a definite crisis there. Everything has been put on hold to wait for the COVID-19 to go, which is once again threatening to raise its head. There is a need to set aside lots of funds to build healthcare infrastructure in the State. Overall sense is that it’s going to be a tough economic situation,” she said.
According to her, unlike the central government, the State has fewer sources of funds to meet its deficit. She suggests Goa could look at beyond Indian shores to mobilise funds.
“As Goa has a good number of persons settled abroad, it may be interesting to invite them to invest in the State’s development. Some time back such a strategy was used in Gujarat. Here, Goa has to provide platforms which can be attractive for NRIs to participate in and be given importance and opportunity to connect with their loved home/roots,” she said.
Borde expects EDC Ltd, financial and investment institution of Goa, to shell out a higher dividend for the current fiscal to the State government.
“There is always EDC. Like the government of India made RBI pay huge dividend to itself to reduce fiscal deficit because it was having a revenue shortage, you can see something like that happening in Goa. You might have some profit-making corporations ending up paying very high levels of dividend,” he said.
The government is also likely to use the pandemic year to record revenue deficit for the first time. The outlook for revenue surplus in the current fiscal is Rs 353.61 crore compared to Rs 270.12 crore in the previous year.
The State creates “superficial” revenue surplus for the State by stalling spends and pushing them to a later period. This could be achieved by delaying interest payment to some banks, holding back disbursements to Public Works Department (PWD) contractors, keeping dairy subsidies off budget and other such measures.
“It’s (revenue surplus) more of shuffling of numbers. For instance, in actual, it (budget) will show it (expenses) has not been paid. So, it will show the revenue has happened but the expenditure has not happened, so it (budget) will show revenue surplus,” said Borde.
