Source: PRS
The Chief Minister, Mr. Jai Ram Thakur, presented the Budget for Himachal Pradesh for the financial year 2020-21 on March 6, 2020.
Budget Highlights:
- The Gross State Domestic Product (GSDP) of Himachal Pradesh for 2020-21 (at current prices) is projected to be Rs 1,82,020 crore. This is 10% higher than the revised estimates for 2019-20. GSDP for 2019-20 (at current prices) is estimated to be 7.6% higher than that in 2018-19.
- Total expenditure for 2020-21 is estimated to be Rs 49,131 crore, a 1.1% decrease over the revised estimates of 2019-20. As per the revised estimates, total expenditure is estimated to increase by 11.9% (Rs 5,300 crore) from the budget estimates in 2019-20.
- Total receipts (excluding borrowings) for 2020-21 are estimated to be Rs 38,465 crore, an increase of 18.9% as compared to the revised estimates of 2019-20. In 2019-20, total receipts (excluding borrowings) are estimated to fall short of the budgeted estimates by Rs 1,413 crore (4.2% of the budget estimates).
- Revenue deficit for 2020-21 is targeted at Rs 684 crore or 0.38% of the GSDP. Fiscal deficit is targeted at Rs 7,272 crore (4% of GSDP). In 2019-20, Himachal Pradesh is estimated to observe a revenue deficit of 2.42% of GSDP as against a budget target of 1.39%. Fiscal deficit is estimated to rise from the budgeted 4.35% of GSDP to 6.42% of GSDP at the revised stage.
- In 2020-21, the highest increase in allocations was observed in Water Supply, Sanitation, Housing and Urban Development (33%), Rural Development (19%), and Education (10%) sectors over the revised estimates of the previous year. Significant decrease in allocation was observed in Energy (21%) and Irrigation (13%) sectors.
Policy Highlights:
Legislative proposals: Himachal Pradesh will enact Model Acts proposed by the central government to remove bottlenecks in the agriculture sector. Cooperation laws will be amended to help cooperative societies to improve their capacity and incomes. A Bill to provide for the establishment of the Himachal Pradesh Investment Promotion Agency will be introduced. Model Municipal Building Bye-Laws will be introduced to promote the development of disaster-resilient structure.
Aspirational District Block Programme: The Aspirational District Block Programme will be started to facilitate the development of panchayats and blocks in backward areas.
Swaran Jayanti Poshahaar Yojana:
The scheme will be introduced to provide for:
- supplementing extra nutrition food such as milk and fruit in Anganwadi and mid-day meal schemes in primary and middle schools and
- starting pre-primary classes in the primary schools (Swasth Bachpan).
Himachal Pradesh’s Economy
- GSDP: The growth rate of Himachal Pradesh’s GSDP (at constant prices) was 7.3% in 2018-19,
higher than the GDP growth rate of the country. - Sectors: In 2018-19, agriculture, manufacturing, and services sectors contributed to 13%, 47% and 40% to the economy. These sectors grew by 2.8%, 10.2%, and 5.4%, respectively.
- Per capita GSDP of Himachal Pradesh in 2018-19 (at current prices) was Rs 2,08,513, 8% higher than the corresponding figure in 2017-18.
- Unemployment: According to the Periodic Labour Force Survey (July 2017-June 2018), the
unemployment rate in Himachal Pradesh was 8.6%, which is higher than that at the all-India
level (6.1%).
Budget Estimates for 2020-21
- The total expenditure in 2020-21 is targeted at Rs 49,131 crore. This is 1.1% lower than the revised estimates of 2019-20. This expenditure is proposed to be met through receipts (other than borrowings) of Rs 38,465 crore and borrowings of Rs 7,554 crore. Total receipts for 2020-21 (other than borrowings) are expected to be 18.9% higher than the revised estimates of 2019-20.
- As per the revised estimates of 2019-20, while the receipts (other than borrowings) are estimated to reduce by 4.2% over the budget estimates, the total expenditure is estimated to increase by 11.9%. This implies that there will be an increase in the borrowing requirement. As a result, in 2019-20, the state is estimated to observe a revenue deficit of 2.42% as against a budget target of 1.39%. Fiscal deficit is estimated to rise from the budgeted 4.35% of GSDP to 6.42% of GSDP at the revised stage.
Expenditure in 2020-21
▪ Capital expenditure for 2020-21 is proposed to be Rs 10,008 crore, which is a decrease of 25% over the revised estimates of 2019-20. Capital expenditure includes expenditure affecting the assets and liabilities of the state, such as: (i) capital outlay, i.e. expenditure which leads to the creation of assets (such as bridges and hospitals), and (ii) repayment and grant of loans by the state government.
▪ In 2019-20, capital expenditure is estimated to increase by 60.9% from the budget stage to the revised stage. The debt repayment is estimated to increase by 3,439 crore (105.4%) at the revised stage as compared to the budget stage.
▪ Himachal Pradesh’s capital outlay for 2020-21 is estimated to be Rs 6,255 crore, which is 5.2% higher than the revised estimates of 2019-20. In 2019-20, the revised estimates for capital outlay is 29.8% higher as compared to the budget estimate for that year.
▪ Revenue expenditure for 2020-21 is proposed to be Rs 39,123 crore, which is an increase of 7.7% over revised estimates of 2019-20. This expenditure includes the payment of salaries, interest, and subsidies.
Sector-wise expenditure in 2020-21
The sectors listed below account for 65% of the total expenditure by the state in 2020-21.
Committed expenditure: Committed expenditure of a state typically includes expenditure on payment of salaries, pensions, and interest. A larger proportion of budget allocated for committed expenditure items limits the state’s flexibility to decide on other expenditure priorities such as capital outlay.
In 2020-21, Himachal Pradesh is estimated to spend Rs 27,036 crore on committed expenditure items. This is 11.7% higher than the revised estimates of 2019-20. In 2020-21, Himachal Pradesh is estimated to spend 70% of its revenue receipts on committed expenditure items. This comprises of spending on salaries (39% of revenue receipts), pension (19%), and interest payments (13%). In 2020-21, expenditure on salaries is estimated to increase by 14% over the revised estimates of 2019-20.
Receipts in 2020-21
▪ The total revenue receipts for 2020-21 are estimated to be Rs 38,439 crore, an increase of 18.9% over the revised estimates of 2019-20. Of this, Rs 11,501 crore (30%) will be raised by the state through its own resources, and Rs 26,938 crore (70%) will come from the centre in the form of grants (54% of revenue receipts) and the state’s share in central taxes (16% of revenue receipts).
▪ Devolution: In 2020-21, receipts from the state’s share in central taxes are estimated to increase by 34% over the revised estimates of 2019-20. However, as per the revised estimates of 2019-20, the receipts from the state’s share in central taxes is estimated to decrease by 36.8% as compared to the budget stage. This may be due to a 19% cut in the union budget for devolution to states, from Rs 8,09,133 crore at the budget stage to Rs 6,56,046 crore at the revised stage. Himachal Pradesh’s share in the centre’s tax revenue will increase from 0.30% during the 2015-20 period to 0.33% for 2020-21 (an increase of 10%) as per the recommendations of the 15th Finance Commission.
▪ Tax Revenue: Total own tax revenue of Himachal Pradesh is estimated to be Rs 9,090 crore in 2020-21, an increase of 13.6% over the revised estimates of the previous year. The own tax to GSDP ratio is targeted at 5.0% in 2020-21, which is higher than the revised estimates for 2019-20 (4.8%). This implies that the growth in tax collection is estimated to be higher than the growth of the economy.
▪ In 2020-21, State Goods and Services Tax (SGST) is estimated to be the largest source
of own tax revenue (42.4% of total own tax revenue). SGST collection is estimated to
increase by 8.9% over the previous year.
▪ In 2020-21, Himachal Pradesh is expected to generate Rs 1,788 crore from state excise
duty, an increase of 10% over the previous year.
▪ The state is estimated to raise Rs 1,685 crore from sales tax (on items such as petroleum
products), and VAT, an increase of 38.4% over the revised estimates of 2019-20.
GST Compensation
The GST (Compensation to States) Act, 2017 guarantees states compensation for five years (till 2022) for any revenue loss arising due to GST implementation. The Act guarantees states a 14% annual growth on their revenue which was subsumed under GST. If the GST revenue of a state does not match the guaranteed growth, compensation grants are provided to meet the shortfall.
The state is estimated to receive GST compensation grants in all three years between 2018-19 and 2020-21. In 2020-21, this grant is estimated to be Rs 3,338 crore (8.7% of the total revenue receipts). This is 15% higher than the revised estimates of the previous year. Reliance on GST
compensation grants indicates a slower growth in SGST collection as compared to the 14% annual growth envisaged under the Act.
Deficits, Debts and FRBM Targets for 2020-21
The Himachal Pradesh Fiscal Responsibility and Budget Management (FRBM) Act, 2005 provides annual targets to progressively reduce the outstanding liabilities, revenue deficit and fiscal deficit of the state government.
Revenue Balance: It is the difference of revenue expenditure and revenue receipts. A revenue deficit implies that the government needs to borrow to finance its expenses which do not create capital assets. Once the revenue deficit is accounted for, only then the borrowings can be used for capital investments. A revenue surplus implies that the revenue receipts of state are sufficient to meet the revenue expenditure requirements. The budget estimates a revenue deficit of Rs 684 crore (0.38% of GSDP) in 2020-21. The 14th Finance Commission had recommended that states should eliminate revenue deficit. However, between 2019-20 and 2023-24, the state is estimated to observe revenue deficit (Figure 2). The 15th Finance Commission recommended a post-devolution revenue deficit grant of 11,431 crore for Himachal Pradesh for 2020-21. This grant has been provided to compensate for the revenue deficit.
Fiscal deficit: It is the excess of total expenditure over total receipts. This gap is filled by borrowings by the government, and leads to an increase in total liabilities. In 2020-21, the fiscal deficit is estimated to be Rs 7,272 crore (4% of GSDP). The estimate is beyond the 3% limit as per the FRBM Act. The 3% limit may be relaxed to a maximum of 3.5%, if the state can contain its debt and interest payments to certain specified levels. The fiscal deficit of the state is estimated to remain greater than 3% between 2019-20 and 2023-24.
Outstanding Liabilities: Outstanding liabilities is the accumulation of borrowings over the years. In 2020-21, the outstanding liabilities are expected to be 33.62% of the GSDP, 0.06% lower than the revised estimates for 2019-20. This is higher than the average level of outstanding liabilities of 29 states in 2019-20 (24.6% of their GSDP).
Outstanding Government Guarantees: Outstanding liabilities of states do not include a few other liabilities that are contingent in nature, which states may have to honour in certain cases. State governments often guarantee the borrowings of State Public Sector Enterprises (SPSEs) from financial institutions. The total outstanding government guarantees at the end of the year 2020-21 is estimated to be Rs 2,422 crore (1.3% of GSDP).
Debt Servicing
In 2020-21, Himachal Pradesh is expected to spend Rs 8,325 crore on servicing its debt. This is 26% less than the revised estimates of 2019-20. This includes Rs 3,394 crore towards repaying loans (41%), and Rs 4,932 crore towards interest payments (59%).
Comparison of states’ expenditure on key sectors
The graphs below compare Himachal Pradesh’s expenditure on six key sectors as a proportion of its total expenditure on all sectors. The average for a sector indicates the average expenditure in that sector by 29 states as per their budget estimates of 2019-20.
▪ Education: Himachal Pradesh has allocated 18.3% of its total budget for education in 2020-21. This is higher than the average expenditure (15.9%) allocated for education by states (using 2019-20 BE).
▪ Health: Himachal Pradesh has allocated 6.6% of its total budget on health, which is higher than the average allocation for health by states (5.3%).
▪ Agriculture: The state has allocated 6.0% of its total expenditure towards agriculture and allied activities. This is lower than the average allocated by states (7.1%).
▪ Rural development: Himachal Pradesh has allocated 3.8% of its expenditure on rural development. This is significantly lower than the average allocation for rural development by states (6.2%).
▪ Roads and bridges: Himachal Pradesh has allocated 8.8% of its total expenditure on roads and bridges, which is significantly higher than the average expenditure of 29 states (4.2%).
▪ Police: Himachal Pradesh has allocated 3.4% of its total expenditure on police, which is lower than the average allocation for police by states (4.1%).
Recommendations of the 15th Finance Commission for 2020-21
The 15th Finance Commission’s (15th FC) report for the financial year 2020-21 was tabled in Parliament on February 1, 2020. The 15th FC recommended a 41% share for states in the central government’s tax revenue in 2020-21, a 1% decrease from the 42% share recommended by the 14th FC (2015-20). The 1% decrease is to provide funds to the newly formed union territories of Jammu and Kashmir, and Ladakh from the share of the central government. The 15th FC also proposed revised criteria for determining the share of individual states.
Table 8 shows the share of states in the central government’s tax revenue2 , as per the recommendations of the 14th FC for 2015-20 and the 15th FC for 2020-21. The 15th FC has recommended a 0.33% share for Himachal Pradesh in the centre’s tax revenue for 2020-21 (an increase of 10% over the 14th FC period). This implies that out of every Rs 100 of centre’s tax revenue in 2020-21, Himachal Pradesh will receive Rs 0.33. Table 8 also shows the estimated devolution to states by the centre for 2019-20 and 2020-21 (in Rs crore).
In addition, the 15th FC has also recommended certain grants-in-aid for various purposes for the year 2020-21. These include: (i) Rs 74,341 crore as grants to states for eliminating revenue deficit, of which Himachal Pradesh will receive Rs 11,431 crore, (ii) Rs 90,000 crore as grants to local bodies, of which Himachal Pradesh will receive Rs 636 crore (this consists of Rs 429 crore for rural local bodies and Rs 207 crore for urban local bodies), and (iii) Rs 22,184 crore as the centre’s grants to disaster management, out of which Himachal Pradesh will receive Rs 409 crore.
Key budget announcements
▪ Insurance coverage will be provided to certain classes of workers such as Anganwadi workers/helpers, ASHA workers, water carriers, water guards, mid-day meal workers, and tailoring mistress.
▪ Income criteria for giving land to landless/houseless persons is to enhanced from Rs 50,000 to Rs 1,00,000 per annum.
▪ Minimum wage rate will be revised from Rs 250 per day to Rs 275 per day.
▪ Grant of death-cum-retirement gratuity will be provided to employees covered under the National
Pension Scheme (NPS) who retired before September 2017.
▪ Emoluments for contract employees is proposed to be increased from 125% of grade pay to 150% of grade pay.
▪ 20,000 vacant posts of various departments will be filled up during 2020-21. It includes (i) 3,000 posts of the State Electricity Board, (ii) 1,000 posts of Constables, (iii) over 5,000 posts in Education, and (iv) 1,300 posts in the Road Transport Commission.
▪ Hydro-electric projects of 394 MW capacity will be started during 2020-21.
▪ One-time relief to the power producers will be provided for speeding up the execution of stalled projects.
▪ Subsidy of Rs 2,000 per KW will be provided for executing solar projects of 250 to 500 KW capacities.
▪ A Centre of Excellence will be established to promote skill development, training and research activities in Information Technology with a cost of Rs 155 crore.
▪ Institute of Hotel Management in Dharamshala and Food Craft Institute in Sundernagar will be
established.
▪ The State Sports Policy 2020 will be notified.
▪ Policy to provide Way Side Amenities along highways will be framed.
▪ Milk procurement price will be increased by Rs 2 per litre
