Resource Mobilization for State Plan

By

S.Subramanya

Secretary ( Budget & Resources)

Government of Karnataka

Presentation Plan

• Concept of government Finances

• How availability of resources for Plan are estimated?

• Karnataka Fiscal Responsibility Legislation and imposition of restrictions.

• Estimation of resources for 11th plan

Part 1

Concept of Government Finances

Government Finances

Consolidated

Fund

CF

PublicAccount

Revenue Deficit

Fiscal Deficit

Debt

RevenueAccount

Capital Account

RevenueExpenditure

CapitalExpenditure

Expenditure

Tax

Non Tax

GoI Grants

Receipts

Devolution

Non Debt Capital Receipts

State Debt

Revenue Surplus – not equivalent to accumulation of profit or cash

RevenueExpenditure

CapitalExpenditure

RevenueReceipts

Revenue Deficit

This portion of fiscal deficit is being used to fund Revenue Expenditure

Fiscal Deficit

The State erodes into the savings made by the household and private sector to fund its current expenditure thereby reducing the net savings in the economy and thus hampering growth

Receipts Expenditure

The State generates savings in the public sector adding to the net savings in the economy augmenting the savings of household sectors and by using this surplus to fund capital expenditure stimulating growth

State Debt

Revenue Surplus – not equivalent to accumulation of profit or cash

RevenueExpenditure

CapitalExpenditure

RevenueReceipts

Fiscal Deficit

This Revenue Surplus goes into funding the extra capital expenditure

Receipts Expenditure

Revenue Surplus

Why should there be no Revenue Deficit

• Revenue Deficit implies that the Revenue Expenditure of the State is greater than the Revenue Receipts.

• The State borrows to meet even the current expenditure• Basic Principle: borrowings should never fund current

expenditure but should be used only for Capital Expenditure

• Growth depends on the Savings made by Household Sector and Public Sector,

• Revenue Deficit indicates the extent to which State Government eats into the household and private savings to meet its current expenditure – RD is detrimental for growth

• For growth, even government should generate (revenue) surplus and use it for capital expenditure

Why should Fiscal Deficit be restricted?

• Fiscal deficit is the difference between the total expenditure and the non-debt receipts which is met by borrowings

• Fiscal Deficit per se is not bad provided– It is kept within a sustainable limit– There is no revenue component

• Excessive fiscal deficit implies more borrowings leading to higher interest payments which would crowd out development expenditure in future

• Fiscal Deficit causes intergenerational inequity and thus governments need to be cautious

Part 2

How availability of resources for Plan are estimated?

SOTR

SONTR

Devolution

Non-Plan Grants

+

Non Plan Non Devlp Exp

Non Plan Devlp Exp

+

-

Balance of Current Revenues

Non-Plan Capital Receipts

Non-Plan Capital Expenditure

- Miscellaneous Capital Receipts

Provident Fund

Small Savings

IR

EBR

+ IEBR

NCA

ACA for EAPs

Other ACA

Central Assistance to State Plan

+

Market Borrowings

Negotiated Loans

Financial R

esources for A

nnual Plan

Part 3

Karnataka Fiscal Responsibility Legislation and imposition of

restrictions.

Fiscal Legislations

• Karnataka Fiscal Responsibility Act– (Consolidated) Revenue Deficit to be eliminated– Fiscal Deficit to be limited to 3% of GSDP– Any additionality should be offset by saving elsewhere

or additional resources within above parameters

• Karnataka Ceiling on Government Guarantees Act– Outstanding Guarantees to be limited to 80% of the

Revenue Receipts of one year prior to previous year

Fiscal Deficit

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

1999-00 2000-01 2001-02 2002-03 2003-2004

2004-05 2005-06 2006-07

Fiscal Deficit

Trends in Fiscal Deficit

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

1999-00

2000-01

2001-02

2002-03

2003-2004

2004-05

2005-06

2006-07

Revenue Receipts

Revenue Expenditure

Trends in Revenue Receipts and Expenditure

Result of Fiscal correction

• Revenue deficits have been eliminated. Fiscal deficit is contained with in 3 % of GSDP.

• Debt stock is less than 33% of GSDP. Interest payments are less than 14 % of TRR. Expenditure on salary and pension is less than 30% of TRR.

• Expenditure on capital formation has increased. Revenue surplus is being utilized for capital formation.

• The state has received the fiscal Incentive facility provided by the 11th Finance commission. The benefit of Debt consolidation and debt waiver announced by the 12th Finance Commission has also been provided by GOI.

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

1992-

93

1993-

94

1994-

95

1995-

96

1996-

97

1997-

98

1998-

99

1999-

00

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

AP BE A/c

Ability of the State in Financing the annual plans

Post Fiscal reforms challenges

• Conserving revenue streams. • Ensuring efficiency in expenditure. • Increasing allocation of resources to the social

sectors like health and education, social welfare and infrastructure development.

• Targeting of subsidies and reducing non targeted subsidies.

• Promoting capital formation for durable growth.

Part 4

Estimation of resources for 11th plan