Efficient Financial Management Gives Impetus to Development

Financial discipline, efficient fiscal management and austerity measures adopted by the Government of Madhya Pradesh during the last two years have resulted in positive changes in the finances of the state. With a view to establishing financial balance, the State Government has taken many significant decisions. The credibility of the state in the financial market has shown unprecedented improvement, reflected in over-subscription of the development of bonds floated by the government.

Steady progress of any State depends on its sound fiscal policy. It has always been a challenge before the policy makers to balance financial discipline and enhancing investment in development works. Any decrease in expenditure on welfare schemes and investment on development projects could damage economy of the state.

Previous years had seen a constant downfall in financial position of the Government of Madhya Pradesh. Due to the increasing revenue deficit, borrowings were spent on current consumption expenditure for last several years. The State Government's liabilities constantly went up and the amount borrowed could not be spent on productive activities. Consequently, the required investment on infrastructure i.e. irrigation, energy, roads, drinking water supply, hospitals and school buildings suffered.

The government has undertaken many fiscal reform initiatives during the financial year 2004-05. Some of these measures are of a macro economic nature and some are micro economic relating to procedures and processes.

The uncontrolled increase in non-plan revenue expenditure raised the revenue deficit to Rs. 5204 crore. The present government made all possible efforts to bring the revenue deficit down to Rs. 4009 crore during the year 2004-05. It may be mentioned that the revenue deficit of the year 2005-06 is estimetedestimated to be one percent of the GSDP. The financial improvement has enhanced theenhanced the state's image in the country.

The state government has also reversed the trend oftrend of spending borrowings on day-to-day expenditure. Now a large partlarge part of the borrowings is being spent on capital works. This will ensure that there is a return on the capital expenditure, which can be used to repay interest and the principal in future years.

The level of public investment is one of the important parameters in evaluating the fiscal performance of the State Government. Higher levels of capital outlay by the State not only improves the physical and social infrastructure but also brings in private investment thereby increasing the employment opportunities and income levels. During the year 1996-97, the capital outlay was Rs. 1020 crore and the previous government took six years to increase it to Rs. 2454 crore by 2002-03. As result, the condition of the physical infrastructure deteriorated.

Due to the greater emphasis given to the infrastructure by the present government, the capital outlay has gone up to Rs. 4951 crore in 2004-05 and is expected to cross Rs. 5000 crore this year. During the year 2005-06, the public debt is increasing by Rs. 4925 crore and the State is expected make Rs. 5025 crore investment in contrast to the year 2001-02 in which only 50% of the borrowing went to public investment and rest to consumption eexpenditure.

The State Government has also taken effective steps to curb tax evasion and to improve the tax recovery, which resulted in an increase of 19 percent in revenue collection this year in comparison to previous year. In budget speech of last year it was proposed to mobilize additional resources of Rs. 173. 76 crore. Against this, an amount of Rs. 146.26 crore has so far been mobilized.

An unprecedented increase in tax and non-tax revenue collection has also been registered by March 2005. An increase of 9.80 percent has been registered in excise revenue, 18.89 percent from commercial taxes, 12.55 percent from forest and 13.65 percent from mining. Under the small saving schemes 13.86 percent more amount has been collected by March during the financial year 2004-05 in comparison to the corresponding period to the previous financial year.

Similarly, an increase of 28.35 percent has been registered in the revenue collected from Stamp and Registration this year. An amount of Rs. 788.71 crore has been collected by March 2005 against the target of Rs. 760. crore.

As a result of the improved financial management, the state government did not have to resort to over-draft even for a single day in the last financial year as against 47 days of over-draft in the previous year. Consequently, drawl from treasuries was not restricted even for a single day and the development works were not disrupted. It is after a long period of 16 years that state government did not have to resort to over-draft even for a single day. This year so far the State has not even resorted to Ways and Means Advances (WMA). The State of Madhya Pradesh has regained its lost credibility in financial market. The State Development Loans have been oversubscribed by 35 percent. The State Government has utilised each and every opportunity, which could strengthen its financial condition. The state government has swapped high cost debt of Rs. 1227 crore with low cost debt resulting in savings of Rs. 56 crore. The state government has also taken liabilities of Rs. 1900 crore of MPEB, which also improved image of Madhya Pradesh among financial institutions.

The state's annual plan for the year 2005-06 has been pegged at Rs. 7471 crore by the Planning Commission. The Concept of district plan has been included effectively in the annual plan of the state. The Vice Chairman, Planning Commission, Dr. Ahluwalia has lauded the Government of Madhya Pradesh for implementation of schemes in the state.

The State Government has also provided Rs. 17.23 crore to the 12 Regional Rural Banks in February 2004. This share of equity of state government was due for over two years. The Government of Madhya Pradesh has made few important provisions in the new budget. Accordingly, 55 percent Dearness Allowance would be given to government employees and pensioners. Integrated inter-state check post would be set up at four main entrances of the state, which include Sendhwa, Multai, Khawasa and Shahpur Fata. It would facilitate smooth traffic and bring about transparency in taxation. A provision of Rs. 40 crore has been made for this purpose. Tender process has been reformed with a view to promote healthy competition and transparency. A new contributory pension scheme has been launched for employees appointed after January 2005. Also, a provision of Rs. 250 crore has been made for restructuring of public sector undertakings and discharge of liabilities. The Fiscal Responsibility and Budget Management Act has been passed by the State Assembly. It would help bring transparency and fiscal stability. A Guarantee Redemption Fund is being set up to set aside resources for loans guaranteed by the State Government. A cyber treasury would also be set up in the State in the next financial year.

The above facts reassure one of further improvement in financial health of the state leading it from strength to strength and enable it to scale new heights of development.