'Maharashtra's Economy Is Going Sri Lanka's Way'

'Maharashtra is virtually in a debt trap.'

Maharashtra handed the Mahayuti alliance led by the Bharatiya Janata Party an unprecedented victory in the recent assembly elections.

Many political analysts believe that the Majhi Laadki Baahin Yojana announced three months before the elections was instrumental in the government beating anti-incumbency.

MLBY transferred Rs 1,500 a month to beneficiaries -- around 25 million women.

Critics said it was good politics but bad economics as the scheme cost the state exchequer Rs 46,000 crore (Rs 460 billion) a year -- and strained the state's resources.

Regardless of the red flags, the state government has since decided to raise the amount to Rs 2,100 a month as promised in its poll manifesto.

Syed Firdaus Ashraf/Rediff.com spoke to Vishwas Utagi, leader of the All India Bank Officers Association and economist, on Maharashtra's financial muscle to afford the Laadki Baahin Yojana.

Will the Laadki Baahin Yojana lead to greater fiscal woes for Maharashtra?

It is beneficial for the women of Maharashtra as they will now get Rs 2,100 per month instead of Rs 1,500 that they were getting earlier.

These women are below the poverty line so they will definitely welcome it.

There is nothing wrong in it because this cash is readily available to them from the government's side.

The other question then arises, how will it impact Maharashtra's budget?

You cannot blame the takers because ultimately those who are monitoring this scheme are giving benefit to the common person -- in this case, poor women -- but in the long run it will affect Maharashtra's economy.

In what way?

The question is, how much provision can you make in the state budget for such schemes as you have to shut down some other scheme to put money in LBY?

When Maharashtra Finance Minister Ajit Pawar presented the budget he said LBY cost the government Rs 46,000 crore so the question arises, what happens to other (beneficiary) schemes? How long can you continue with such a scheme?

The funds position today is such that Maharashtra is virtually in a debt trap.

Around Rs 2 lakh crore is the revenue gap of the Maharashtra government.

And Rs 8 lakh crore is the debt burden on the state.

The debts raised by the Maharashtra government from different financial institutions, like the World Bank and other places, to run metros will take a lot of income away from the state.

If you take all these debts, then on every Rs 100 earned by the Maharashtra government, Rs 35 to Rs 40 will go in debt servicing.

And if these financial policies continue in future, Maharashtra's budget will become like Sri Lanka's budget.

How is Maharashtra heading the way of Sri Lanka?

The option now for the Maharashtra government is to raise more taxes to generate more revenue.

They may raise property taxes, stamp duty or under other heads but these taxes are already on the higher side.

They have limited items like liquor tax where they can go and charge more but this too is already on the high side.

How long can the Maharashtra government go on with freebies?

They are already shutting down government schools followed by public health services. Public health and public education are now dying in Maharashtra.

The tax burden will be heavy on the people of Maharashtra in days to come.

Ajit Pawar told me giving Rs 50 per day to poor women is nothing as you don't even get one cup of tea in cities like Mumbai for that amount.

The per capita income is very low in Maharashtra for the last 15 years. Rural income is low and the per capita income is less and Maharashtra has reached the number 7 position.

The leaders are announcing freebies but they have done nothing to boost Maharashtra's per capita income in both rural as well as city areas.

Per capita income of the state is falling and therefore I am saying Maharashtra's economy is going Sri Lanka's way.

The situation is very dangerous.

Then prime minister Vajpayee had introduced the Fiscal Responsibility and Budget Management Act to curb wasteful expenditure. Do states follow it?

According to me the (economic index) figures have been fudged by the Government of India from 2014 onwards.

After Covid we had a -24% fall in GDP in June 2020. You will find that many medium scale businesses and small scale businesses shutting down. Only 45 percent of these micro small and medium enterprises (MSMEs) could be revived as 55 percent of them shut down. This had a tremendous impact on wage earners as jobs evaporated overnight.

Moreover, technology has changed so much that new jobs are being created only at places where fewer workers are required. And even with whatever jobs you get they are contractual. This is a new situation since 2022.

Capital will flow only in those directions where fewer jobs are created and this results in lower purchasing power in the hands of the people.

This only takes the Maharashtra economy downwards as there is no purchasing capacity among the people.

Even the Comptroller and Auditor General had flagged state governments over their finances as they were not following fiscal discipline in spending. Do politicians not understand the seriousness of the situation?

This is a very serious situation for Maharashtra. There is no future for new jobs. And in this scenario you need to have a different kind of approach to develop the budget.

I can understand putting money in the hands of people during Covid times as people had lost purchasing power. Handing over money to them was essential then. But you cannot dole out money and freebies without creating jobs.

The government is not helping MSME by getting loans to them through banks or helping them to expand them so that they can create jobs.

The big issue today for the Maharashtra government is how will they bridge their revenue deficit which has gone beyond 3 percent.

The Fiscal Responsibility and Budgetary Management Act states that Maharashtra's fiscal deficit should be within 3 percent of its Gross State Domestic Product which they are not able to maintain due to fiscal indiscipline.

Even the Opposition Maharashtra Vikas Aghadi led by the Congress stated it would give every woman Rs 3,000 per month if it came to power. What do you do in such a situation as every political party is trying to outdo the other with freebies?

They are also looking at the short term.

Subsidies are necessary but how long they should continue that has to be decided.