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Evaluating State Fiscal Health: The Gap Between Budget Promises and Actual…
Evaluating State Fiscal Health: The Gap Between Budget Promises and Actual Spending"
Central Claim
The central claim of the authors, Radhika Pandey and Rachna Sharma, is that states are engaging in "over-promising and under-spending" with their budgets. Specifically, while states have budgeted for higher capital expenditures (capex) for the financial year 2023-24, trends from the previous financial year (2022-23) suggest that they are unlikely to meet these targets due to past underspending and overly ambitious economic assumptions.
Sub-Claims
Sub-Claim 1: States have consistently under-spent on capital expenditures despite promising higher outlays. This is evident from their reduced actual spending compared to budgeted commitments.
Sub-Claim 2: States' fiscal health is characterized by significant deviations in their fiscal deficits and revenue assumptions, reflecting either poor fiscal discipline or overly optimistic projections
Logic Used to Jump from Facts/Evidence to Each Sub-Claim
Sub-Claim 1 Logic:
Budget vs. Actual Spending: The evidence shows a trend where states’ actual capital spending falls short of their budgeted figures, reflecting a pattern of over-promising and under-spending. This pattern is further reinforced by specific examples where actual expenditure is significantly below budgeted figures, demonstrating a systemic issue in meeting capital outlay commitments.
Sub-Claim 2 Logic:
Fiscal Deficit Deviations: The substantial deviations in fiscal deficit projections suggest that some states either overestimated their fiscal health or faced unexpected fiscal pressures, indicating poor fiscal management or unrealistic budgeting.
Inconsistent Estimates: Discrepancies between BE, RE, and actual figures highlight a lack of reliability in fiscal projections, undermining the credibility of states' financial planning and revealing potential issues in fiscal discipline or unexpected economic disruptions.
Revenue and Growth Assumptions: The states’ aggressive revenue and growth projections, which are higher than central government estimates, suggest an optimistic or unrealistic outlook that could lead to overestimation of fiscal health and revenue generation capabilities.
Logic to Jump from Sub-Claims to Central Claim
The central claim is built on the aggregation of these sub-claims:
From Sub-Claim 1 to Central Claim: The pattern of under-spending on capital expenditure, despite higher budgeted commitments, demonstrates a recurring issue of states failing to meet their promised spending targets. This contributes to the broader claim of over-promising and under-spending.
From Sub-Claim 2 to Central Claim: The deviations in fiscal deficits and discrepancies in fiscal projections reinforce the argument that states are not managing their budgets and fiscal positions effectively. The unrealistic revenue and growth assumptions further support the notion that states are setting unattainable goals, which aligns with the claim of over-promising and under-spending.
Evidence for Each Sub-Claim
Sub-Claim 1 Evidence:
Under-Spending: States collectively committed to increasing their capital outlay by 21% for 2023-24 over the Revised Estimates (RE) of 2022-23. However, for the previous year, they underspent by 3% compared to their budgeted capex. Specific states like Andhra Pradesh, West Bengal, and Haryana had massive cuts in capital expenditures from their budgeted estimates. Examples include Uttar Pradesh and Maharashtra, where actual spending was less than half of the budgeted amounts.
State-Level Variations: Examples such as Bihar and Himachal Pradesh propose significant reductions in capital outlays for 2023-24 compared to the RE for 2022-23.
Sub-Claim 2 Evidence:
Fiscal Deficit Deviations: Some states, such as Bihar and Assam, show considerable deviations from their budgeted fiscal deficits. For instance, Bihar’s fiscal deficit was projected to be 3.5% of GSDP but is expected to be 8.8% according to the RE for 2022-23.
Discrepancies in Estimates: The discrepancy between Budget Estimates (BE), Revised Estimates (RE), and actual fiscal outcomes is evident. Bihar’s fiscal deficit RE for 2021-22 was substantially higher than both BE and actuals, indicating a pattern of inconsistent fiscal projections.
Revenue and Growth Assumptions: States are projecting higher revenue growth rates and GSDP growth rates than those assumed by the central government. For example, Uttar Pradesh’s projected GSDP growth rate is 19%, which is significantly higher than the central government's 10.5% nominal GDP growth estimate.