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Are state governments overestimating their budgets?

LiveMint logoLiveMint 20-08-2017 PRS Legislative Research

Over the past few years, state governments have been spending less they had originally budgeted for. This seems to be the outcome of states consistently falling short of their revenue targets from taxation. Also, they expected to receive more grants than what the centre had budgeted to give. We analyse the budgets of 19 state governments over a period of five years (2011-12 to 2015-16) to compare how state governments fared in raising revenue and how this affected their spending.

Between 2011-12 and 2015-16, revenue collected by state governments was 7% lower than their initial budgeted estimates. Among various components, state governments’ estimates fell short the most (20%) with respect to grants receivable from the centre. This is because state governments budgeted to receive more in grants than what the centre intended to provide.

For example, in 2016-17, states collectively budgeted to receive Rs4.67 trillion from the centre, while the centre has budgeted to provide only Rs3.47 trillion to all the states. This is an over-estimation of 34%. Telangana’s revenue saw the highest shortfall (27%) from its budgeted target, followed by Assam (23%). On the other hand, Kerala (3%), Maharashtra (4%) and Odisha (4%) have a lower shortfall.

Lower than estimated revenue led to governments spending lower than what they initially budgeted. Revenue expenditure, which includes committed liabilities such as salaries and interest payments, saw a shortfall of 4% from the budgeted targets. Consequently, capital expenditure, which is the spending on creating infrastructure, saw a significant shortfall (12%) when compared to budget estimates. Punjab, Assam, and Jammu and Kashmir witnessed the highest shortfall in this regard.

Data source: State budget documents, RBI State of State Finances.

Graphics by Ahmed Raza Khan/Mint.

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