Raje has the vision, lacks financing model

K Yatish Rajawat

vasundhara_rajeState budgets are rarely interesting mostly pedantic and always lack vision. For the first time Rajasthan state budget has broken all these three paradigms. Vasundhra Raje the chief Minister who holds Finance and 12 other portfolios in the state, on July 14, announced a budget full of surprises and bold promises. Hoping to follow the Modi model in Gujarat she has announced numerous populist schemes. Almost as if it was an election budget and not the first budget of her new government. The issue is that between the promises and finances there is a huge gap. Rajasthan’s bureaucrats have still not understood that the Gujarat model is based on pragmatic funding for every initiative.

The surprise is that a state that for very long could not think beyond tourism and trading of marbles is laying down a ambitious investment roadmap. It is ambitious of the CM to lay down a road map for 2020, to meet promises on power, water and even availability of medical services etc.

The confidence shows in the top line where the total Plan outlay for ‘14-15 is set at Rs.69,820 crore compared to Rs.40,500 crore in 2013-14.a huge jump of 72 %. And a fiscal deficit target estimated at 3.52 % of Gross State Domestic Product (GSDP) at Rs.20,186 crore. Rajasthan has tried in the past to keep its fiscal deficit target below 3 per cent as per the recommendations of the thirteen finance commission. CM has clearly thrown caution to the winds and is willing to fund growth through spending. It might look brave but it will not be prudent in the long run as borrowing will rise.

CM is banking on taking risk now and hoping it will pay returns later as the estimated interest payment in 2014-15 is Rs.10470 crore which is 9.87% of total revenue receipts, which is lower than earlier estimates as she is hoping for much higher revenue receipts. The total revenue receipts are estimated at Rs 1,06,124 crores, Gehlot government in its last full year budget of 2013-14 estimated an increase of 8 % in total receipts at Rs 81,552 crore, mainly because of increased tax receipts of 15 %. Raje has gone beyond projecting a 30 per cent increase in receipts and she is banking on divestment and PPP to fund it. There are no major new taxes, besides a high entertainment tax of 30 per cent. Will better collection help, the CM is looking at establishing 16 computerized border check posts possibly to improve tax collection. But it is such a steep target and the disinvestment plan so lack luster that the state is bound to fall short on its targets.

Some disinvestment targets are not even pragmatic. For instance dis-investment of 10% equity of Rajasthan Vidyut Utpadan Nigam Ltd. and Rajasthan Vidyut Prasaran Nigam Ltd. No investor would not be interested in a 10 per cent stake as it gives no control., the budget also announces divestment of other power distribution entities through a PPP route. It is difficult to understand this half way disinvestment the state wants money but is still willing to accede control.

Moreover, the distribution companies are reeling under massive losses of Rs 75,000 crores and are not attractive investment option. Rajasthan also wants to divest 10 to 25 per cent of equity stake in Rajasthan State Industrial Investment and Development Corporation (RIICO),Rajasthan State Road Development Construction Corporation, and Rajasthan States Mines and Mineral Corporation . While the state has set ambitious targets for both investments and collection it has lost its nerve when it comes to divesting the stake. As again which company would be interested in 10 or 25 per cent stake. Moreover, while RIICO has large assets under its control its mandate is not something that will attract private sector looking for profits. A better divestment could have been industrial parks under RIICO.

The state is looking at driving investment and is looking at overhauling its whole investment policy. It has ushered in a change by revising the labour laws to make it easier for smaller companies to hire and fire employees. It is now looking at a new Investment promotion policy, customized package for large & employment intensive investments. Another policy for attracting FDI and domestic investment in the defence sector. A revised textile promotion policy and a special promotion scheme for Electronic System Design and manufacturing Sector. Revised ceramic promotion policy and slew of other initiatives. There are just too may policies that the state wants to announce, but even if all these policies are successful in attracting investments it will take anywhere between 3-4 years for them to materialize on the ground.

It seems that the Chief Minister is clearly inspired by bold announcements and the Modi model and has prepared a budget speech, Unfortunately it seems that the bureaucrats in the state have not done their homework on building sustainable financing models. The tragedy is that a politician can only set the ambitions the system has to rise to meet it.

(K Yatish Rajawat is a senior journalist. He is the founding Editor in Chief of Business Bhaskar (Hindi) and former Managing Editor of Dainik Bhaskar group. In a span of close to two decades he has worked with Economic Times, Businessworld and The Hindu Business Line newspapers. He tweets at @yatishrajawat)