UP Polls: State Finances – A Portrait of Mismanagement

The Bharatiya Janata Party-led state government of Uttar Pradesh has been borrowing so heavily from the market that its total outstanding debt has shot up by almost 40% in five years. Strangely, this has not meant any benefit for the people. Spending for education has declined, and spending on health has increased only marginally, as shares of revenue expenditure.

Even more bizarre is the fact that in four out of five years, the state government was unable to spend even the full budgeted amount, leading to a revenue surplus. This shows a gaping hole in its thinking as well as practice. The full support given to Yogi Adityanath’s government by the Narendra Modi-led Central government – the so-called ‘double engine’ advantage – also doesn’t seem to have helped, either in terms of finances or in planning.

State Govt Debt Zooms …

According to the latest data available with the Reserve Bank of India, which compiles state government finances, the UP government has outstanding liabilities worth as much as Rs.6.5 lakh crore, as estimated in the state budget for 2021-22. This is 38.3% more than the Rs.4.7 lakh crore debt it inherited when it took over in 2017. [See chart below]

The bulk of this debt mountain is owed to financial institutions, such as banks. These are called market borrowings and are taken at hefty rates of interest. But payment is sometime in the future, and the BJP government is living for the ‘here and now’ only. It is not worried about the future. For instance, a report by the Comptroller and Auditor General (CAG) on UP government finances, released last month, pointed out that of the total public debt at the end of 2019-20, Rs.1.99 lakh crore (or 47.7% of the total) would be payable after seven years.
 

CAG Highlights Creative Book-Keeping ...

The CAG report referred to earlier has a shocking revelation. The Yogi government transferred a princely sum of Rs.71,000 crore from a sinking fund illegitimately to its “non-Tax Revenue” head in its books in March 2020. By rules, this should have been invested elsewhere.

The CAG has roundly criticised this brazen violation recommending that “the transfers out of the fund [Sinking Fund] are not to be treated as Revenue Receipts and the amount equivalent to loan repaid should be transferred from Sinking Fund to Major Head 8680 (Miscellaneous Government Account) on redemption of debt”.

The effect of this ‘creative’ book-keeping was that revenue receipts were boosted in the books only, there was no cash actually transferred. This is what caused the next year’s revenue surplus (see below).

….. But Govt Doesn’t Know How to Spend

It is a characteristic of some states that they end the year with huge unspent amounts from their budgetary allocations. This happens because a) they do not know what and how to spend the money; and b) their thinking is enslaved by the dogma of trying to save as much government money as possible. Poor and backward states are particularly prone to this aberrant thinking. UP is no exception.

As the chart below shows, under chief minister Yogi’s leadership, four of the five years have seen a revenue surplus adding up to a huge Rs.1.32 lakh crore! Remember that the figure given for 2021-22 is just estimates presented in the budget, and the actual amount may be larger. Also remember, that the deficit would have been even bigger but for the illegitimate transfer of sinking fund money to non-tax revenue account.

The year 2020-21 was the first year of the COVID pandemic and some extra spending took place. So, the state government ended up actually spending all of its allocated funds and running a small deficit of Rs.13,161 crore.

The bigger issue is – what about the huge debt that the Yogi government has built up over these very years. On the one hand, it was borrowing heavily, presumably because it was going to spend money on the state’s development.

But surprise, surprise! Despite borrowing Rs.1.8 lakh crore in five years, the Yogi government has ended its term with an accumulated revenue surplus – that is, unspent funds – of Rs.1.32 lakh crore! Is this bad planning? Or is the money being directed elsewhere?

Spending on Education and Health

Let us look at two heads where public spending is most essential – education and health. As a proportion of total revenue expenditure, the share spent on education has declined from about 14.8% in 2017-18 when Yogi took over to 12.5% in the budget estimates (BE) for the current financial year. [See chart below]

In 2020-21, when students of the state were struggling to keep up with their studies during the pandemic with schools/colleges and hostels closed and online mode was the dominant way of teaching, the Yogi government saved a lot of money. It should have been the other way round – more spending was needed to compensate for academic losses being suffered by students. In fact, teachers were not paid salaries, staff was denied wages, mid-day meals were stopped. Now, with crucial Assembly elections looming, the government has been busy distributing smart phones and tablets, after two years of deprivation wherein students suffered irreversible damage.

Even more disturbing is the minuscule increase in the share of health expenditure in total revenue expenditure – from 5.3% in 2017-18 to 5.9% in 2021-22 (BE). Remember that these two years are the ones that saw the most deadly ravages of the pandemic. Over 19 lakh people were confirmed as having been infected with COVID and over 23,000 died – according to official estimates. Other independent studies have estimated that in UP the COVID death toll was much higher, as much as 43 times more, according to one study of 24 districts in 2020 only.

Reports based on official data show that the healthcare system in UP remained tragically inadequate to deal with the pandemic. All this would have been avoided if more funds had been allocated and applied by the Yogi government – or got assistance from the other part of the “double engine”, the Modi government at the Centre.

In the context of the shambles that the Yogi government has created in UP, it is disturbing that as the Assembly elections approached, PM Modi and CM Yogi went on a spending spree, inaugurating or laying foundation stones of medical colleges, research centres, distributed tablets to students, opened expressways and irrigation systems – all estimated at over Rs. 1 lakh crore.

Depriving the state’s vast population of basic amenities for four and a half years and then trying to win them over by spending at the last moment, shows a macabre sense of opportunism. The upcoming Assembly polls will reveal what the people think about this travesty.