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Fiscal deficit budgeted at just 2.2% of GDSP in FY22

Maharashtra (MH), India’s largest state, accounts for ~15% of national GDP. The Maha Vikas Aaghadi (MVA) government, led by Mr. Uddhav Thackeray, presented its second Budget for FY22 on 8th Mar’21. Given below are the key highlights:

Agriculture sector:

* To free the farmers from the interest burden and to prevent them from defaulting, the government has decided to provide up to INR0.3m zero percent interest crop loans to farmers, who avail crop loans and repay on time.

* Allots INR20b for strengthening of the Agricultural Produce Market Committee (APMC).

* Around 33% concession has been granted to farmers on pending electricity bills. If the farmers pay 50% of the remaining arrears by Mar’22, an additional 50% of the remaining amount will be waived off. This is estimated to cost the exchequer INR304b and amounts to 66% of the original pending bills of 4.44m farmers.

Infrastructure:

* Around 44% work on the Hindu Hruday Samrat Balasaheb Thackeray Maharashtra Samrudhi Super Express highway has been completed. Of the 701km, 500km from Nagpur to Shirdi will be opened for traffic on Maharashtra Day, i.e. 1st May’21. To further develop Nanded, Hingoli, Parbhani, and Jalna districts of Marathwada, new work on the Nanded-Jalna Expressway Connector is being undertaken at an estimated cost of INR70b.

* On the Mumbai-Pune Expressway, a 2.5km underpass and two bridges of 2km length are under construction and are to be completed by Dec’22. The estimated cost of the project is INR67b.

* A coastal highway of 540km from Rewas in Raigad district to Reddy in Sindhudurg district, as an alternative to the Mumbai-Goa highway, has been taken up. The estimated cost of the project is INR96b.

* To address the huge strain of intra-state migration on Pune, work on a 170km long Pune Ring Road of eightlanes will be constructed at an estimated cost of INR260b. Land acquisition work will be undertaken this year.

* The construction of a 235km Pune-Nashik medium high speed railway line has been recently approved. Twentyfour stations are proposed in Pune, Ahmednagar, and Nashik districts on this route. The speed of this train will be 200km per hour. The expected cost of the project is INR160b.

* Work on the Bandra-Versova Sea Link has already started. The project length is 17.17km and the estimated cost is INR113b. The estimated cost of the Bandra-Versova-Virar Sea Link is INR420b and the feasibility report has been prepared. A detailed project report is under preparation.

Tax changes:

* A 1% concession in Stamp Duty over the prevailing rate has been announced exclusively for women, provided the transfer of house property or registration of the sale deed is in the name of a woman or women only. This will cost the exchequer INR10b.

* To increase State Excise Duty on liquor to 220% of the manufacturing cost, or INR187 per proof liter, whichever is higher, on branded country liquor only. It is estimated to earn an additional revenue of INR8b.

* An increase in VAT on liquor is estimated to generate an additional revenue of INR10b. To increase the rate of Value Added Tax (VAT) on the sale of liquor as prescribed in Schedule-B of the Value Added Tax Act to 65% from the existing 60%. To increase the rate of VAT on the sale of liquor as prescribed in Section 41(5) of the Value Added Tax Act to 40% from the existing 35%.

Financials:

* Total taxes are expected to fall by only 3% YoY in FY21RE, while total receipts are revised to grow by 2.5% this year, led by 28% growth in ‘Grants from the Center’. Of this, only about two-third has been received up to Jan'21. Total receipts are budgeted to grow 27.2% in FY22.

* Total spending is pegged to grow by 12.1% in FY21RE, with a 14.2% growth in capital spending. Only ~32% of capital spending has been achieved up to Jan'21 and total spending is ~61% of FY21RE. Total expenditure is budgeted to grow by 15% next year, with growth of more than a third in capital spending in FY22.

* MH has pegged its fiscal deficit at 3.3% of GSDP for FY21RE and budgeted it at only 2.2% of GSDP in FY22. The state has borrowed less than two-third (INR690b) of its gross market borrowings up to 9th Mar’21 and has plans to borrow another INR95b in the last three weeks of FY21. If so, it implies that gross borrowings will be less than 75% of revised estimates, which raises doubts over the sanctity of other estimates.

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