With no change in the way the economic administration is handled, coupled with the current Covid crisis, the situation is likely to become difficult by the year-end
The crippledfinances of the Goa government have got a temporary lease of life recently. Thegovernment approved the issuance of an ordinance for additional borrowing of Rs446 crore from the open market at 2 per cent interest rate, as permitted by theCentre to meet the GST shortfall. The Central government had earlier grantedpermission to 20 States, including Goa, to raise an additional amount of Rs68,825 crore through open market borrowings.
Currently,all the States along with the Centre have been facing the problem of revenueshortfall. The total GST revenue shortfall for the current fiscal was estimatedto be Rs 3 lakh crore, of which compensation cess collection was estimated tobe Rs 65,000 crore leaving a compensation deficit of Rs 2.35 lakh crore. Notthe entire shortfall is due to the current pandemic.
TheCentre had suggested two options to the States to meet this shortfall. Thisadditional borrowing is worth Rs 1.10 lakh crore, with a maximum permissiblelimit of 0.50 percent of the Gross State Domestic Product (GSDP). The increasedborrowing by the states would be over and above any other borrowing ceilings.Further, the principal and interest would be paid using the compensation cessto ensure that no added burden on the states.
The Goagovernment and the ruling BJP unit in the State are facing myriad problems. Thepoor presentation by the ruling party spokesperson, and the party order-defyingloose-tongued MLAs and ministers have done the most damage. There seems to bechaos and confusion in the government with CM left alone to defendhimself.
Thegovernment has not been able to save its face with constant U-turns amidst thegrowing agitations, drastically increasing crime rates, severe policy paralysisand growing unemployment.
Thecurrent state's unemployment rate is currently pegged at 15.4 per cent, and isamong the highest in the country. The CM’s recent statement that‘even if God becomes CM, it is not possible to provide jobs’is an indicator of his helplessness. Goa's unemployment rate had earlier hit a5-month high of 13.3 percent in April 2020, according to a survey conducted bythe CMIE, but the State had then refused to accept the figures.
With nochange in the way the economic administration is handled, coupled with thecurrent Covid crisis, the situation is likely to become difficult by theyear-end. With the small-scale industry, rural economy and tourism suffering,Goa is now expected to suffer a revenue loss up to 60 percent, compared to 45 percentas expected by this author a couple of months back.
It isno longer a secret that the financial discipline of the Goa Government isturning from bad to worse. The State with mere Rs 7000 crore worth debtsomewhere in 2008 is now on the brink of collapse and has registered aphenomenal growth of 242 percent increase in debt levels in the financial year2020. The Goa State’s total liabilities are touching Rs 25000 crore with a percapita loan estimated at Rs 150000.
Grossfiscal deficit to Gross State Domestic Product for 2020-21 is expected to be5.3 and is the highest amongst all States. The average for all States and UT isjust 2.8 while the Primary Deficit to GSDP is 3.3 against the nationalall-State & UT average of 1.1. Almost 52 percent of our loans will matureafter 7 years, against all India average of 45 percent.
Goa’sfiscal deficit is increasing indicating that the state is finding it difficultto strike a balance between its total revenue and expenditure, according to areport published by the RBI report on ‘State Finances:
RBIreports had earlier put Goa among the three states that fared badly in fiscalslippage sparked some consternation within the finance department. Immediatelyafter the RBI’s report, the finance department officials went into a huddle buthad to finally agree with the facts.
Therevenue expenditure constituted around 80 percent of the total expenditureduring the past three years (2014-19) and the rest as capital expenditure. Therevenue raised by the State Government during the year 2016-19, is around 70percent of the total revenue receipts. The balance 30 percent of the receiptsduring 2016-20 was from the Government of India by way of share of net proceedsof divisible Union taxes and duties and grants-in-aid. For the current year2019-20, the portion receivable from the centre has gone for a toss while ourown revenue has fallen drastically.
In May2020, which otherwise is supposed to be the peak revenue month, Goa continuedto face a revenue slump with commercial tax collection dropping by 53 percentand GST collections by 55 percent, compared to May 2019. Even after raising VATon petrol and diesel we should have received more than Rs 100 crore, but we gotless than Rs 50 crore. The month of April was still worse. There was a 90percent drop in tax mop-up due to the lockdown in April forcing the stategovernment to stagger payments, defer maintenance grants for aided schools anddelay payment to contractors, temporary workers and other non-essential disbursements.
Accordingto the recent RBI Report on State Finances for 19 States, the debt-GSDP ratiofor Goa is expected to exceed very drastically in the year 2020-21. Goa Stateborrows Rs. 100 crore each fortnightly to meet its daily expenditure. Revenuefall has been more than 80 percent. Salaries, grants and pensions cost us Rs500 crore, the interest on debt cost us Rs 200 crore, power buying Rs 175 croreand all this roughly totals to around Rs 850 crore each month. With no specialassistance in the form of Covid relief or in absence of any special economicpackage, our finances will almost dry up in the near future.
Overallit seems that the Goa State lost an opportunity out of its own ego andarrogance of the ruling dispensation, and complete fiscal mismanagement by itsadministrators. If the same situation continues for some more time we will haveno other option than to modify the CM’s statement and say ‘even if Godbecomes the CM, it will not be possible to save Goa’s Finances’.
(Theauthor is a trained financial economist, policy analyst and a popularcolumnist)