Widening fiscal deficit in Maharashtra state: causes and concerns

Abstract

Maharashtra is highly urbanized and economically developed state in India. But now the growth rate is declining, and debt burden has increased in the state. CAGR has been used to examine the impact of FRBM act on fiscal deficit in the state. The RBI data from 1991 to 2016 show that the primary and fiscal deficit is increasing fast. The revenue and capital expenditure are increasing after 2003 FRBM act. The debt burden has increased in the state due to interest payment, pension liabilities, seventh pay commission to state employees, farm loan waiver scheme and infrastructure projects. State government took loans from different sources to finance its capital expenditure. The least square regression result shows that development expenditure in the state has declined very fast. The expenditure on health, education and social welfare of scheduled caste and tribe has declined in the state over the period of time. Government must improve revenue and capital receipts within the short period. Efforts must be made to reduce the debt burden on the state. Therefore, a number of alternative policies are required to improve revenue and capital receipts. State government must increase taxes on electronic and tobacco-related products. Taxes must be increased on commercial vehicles, luxury hotels, entry tax at hill stations, malls and purchase of diamonds and gold, petrol and diesel. Such sources will increase tax revenue to state government and fiscal deficit can be reduced to some extent.