Devendra Fadnavis has completed three years as the chief minister of Maharashtra, the state that’s the biggest contributor to India’s economic output.
His term, so far, has been marked by a slew of infrastructure projects, a farm loan waiver triggered by an agrarian crisis and mounting debt. Fadnavis is now betting on “investments by global companies for the much-needed boost” for the state economy. The inflows will improve civic amenities and transform the state’s rural as and urban landscape, he said in an emailed response to BloombergQuint.
His predecessor Prithviraj Chavan of the Congress is not impressed. “Our hopes have been belied. Every sector of the economy is in distress,” he said.
BloombergQuint takes stock of the key indicators during Fadnavis’ three years at the helm of the state that contributes about 15 percent to India’s $2 trillion gross domestic product.
Big-Ticket Projects
The Bharatiya Janata Party government in the state has announced big-ticket infrastructure projects. The biggest is the 700-kilometre Mumbai-Nagpur highway to be built at a cost of Rs 46,000 crore. But the project has run into a land acquisition hurdle. The government hopes to begin the work by February.
Stalled projects like the Navi Mumbai Airport, Mumbai Coastal Road, and Trans-Harbour Link Road have received environmental clearances. The state has also secured approvals for additional metro lines in Mumbai and new ones in Pune and Nagpur. It expects to complete the projects by 2020-2022.
Maharashtra also received investment commitments worth Rs 8 lakh crore that the chief minister said would generate 30 lakh jobs. But all promises don’t necessarily transform into actual inflows.
Agrarian Crisis
Two back-to-back droughts hurt agricultural growth in the state. The agricultural output – which contributes 10 percent to the gross state domestic product—declined 16 percent in the year to March 2015 from a growth of 12.6 percent in the previous 12 months. It has since revived and the state expects a 12.5 percent growth in agriculture and allied activities in the ongoing financial year. Fadnavis said:
With measures like farm ponds, Jalyukta Shivar, revised administrative approvals to irrigation projects, I am confident that it will help to boost income in agriculture sector.
Farm Loan Waiver
The slowdown in agriculture growth left the state’s farmers under debt. The distress triggered demands for a farm loan waiver, especially after the BJP government in Uttar Pradesh pardoned loans to fulfill a poll campaign promise by Prime Minister Narendra Modi.
The Fadnavis government pardoned loans of Rs 1.5 lakh each for nearly 80 lakh farmers at a total cost of Rs 34,022 crore to the exchequer. The state government announced a supplementary provision of Rs 20,000 crore in the budget for the year ending March to fund the waiver.
Nearly 60 lakh farmers applied and the state released the first Rs 4,000 crore. The waiver was, however, frozen to reverify beneficiaries after 100 farmers were found to have the same Aadhaar number.
GDP Growth
When Fadnavis took office in 2014, the state was growing at 7.4 percent. The pace dropped to 5.4 percent in the following year, but has since revived. The government estimates a growth of 9.4 percent in the ongoing financial year.
“The agriculture sector is growing but industry and service sectors slowed down in 2016-17,” said Soumya Kanti Ghosh, chief economist at State Bank of India.
Growing Debt
Infrastructure projects and the farm loan waiver have pushed up the state’s debt. When Fadnavis took charge, Maharashtra owed investors and lenders around Rs 2.94 lakh crore. Three years on, its burden has jumped 40 percent to Rs 4.13 lakh crore, according to the budget estimates for the year 2017-18.
The debt as a percentage of GSDP at 16.3 percent, however, remained stable. The fiscal deficit also remained well within the 14th Finance Commission’s target of 3 percent of the GSDP.
SBI’s Ghosh said:
Although the fiscal deficit has improved, there is a possibility that it might go up considering the farm loan waiver and GST. As of now, it is estimated at 1.5 percent in the year to March 2018.
Besides the Rs 34,000 crore farm loan waiver, the state has to provide Rs 13,000 crore a year as compensation to municipal corporations after the rollout of the Goods and Services Tax. Wage hikes under the Seventh Pay Commission could also impact fiscal consolidation.
“The immediate challenge would be revenue mobilisation because of announcements such as farm loan waiver,” SBI’s Ghosh said. “Need to see where the money would come from. Also, maintaining the debt stock is also a challenge before the government.”
Revenue and Capital Expenditure
The revenue expenditure, or the administrative costs, of the state is estimated to increase from Rs 1.78 lakh crore to Rs 2.78 lakh crore in three years to March 2018. The capital expenditure – on infrastructure and other development activities–remained 1.2-1.6 percent of the gross state domestic product.
After the farm loan waiver, the state finance department cut revenue expenditure by 30 percent and capital expenditure by 20 percent, according to a government resolution.
(This article was originally published in BloombergQuint.)
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