Assam Budget Analysis 2017-18

 The Finance Minister of Assam, Mr. Himanta Biswa Sarma presented the Budget for Assam for financial year 2017-18 on February 7, 2017. 

Budget Highlights

• The Gross State Domestic Product of Assam for 2017-18 at current prices is estimated to be Rs 2,58,337 crore. This is 15% higher than the estimate for 2016-17.
• Total expenditure for 2017-18 is estimated to be Rs 85,923 crore, a 3.5% increase over the revised estimate of 2016-17. In 2016-17, there was an increase of Rs 4,764 crore (6.1%) in the revised estimate over the budgeted estimate.
• Total receipts (excluding borrowings) for 2017-18 are estimated to be Rs 73,467 crore, an increase of 23.3% over the revised estimates of 2016-17. In 2016-17, total receipts fell short of the budgeted target by Rs 7,183 crore.  This is driven by reduction in tax collections and grants from centre.
• Revenue surplus for the next financial year is targeted at Rs 2,400 crore, or 0.93% of the state Gross Domestic Product (GDP). Fiscal deficit is targeted at Rs 7,702 crore (2.98% of state GDP). 
• Departments of Health, Water Resources, and Rural Development saw increases in allocations for the year 2017-18. On the other hand, the Department of Roads and Bridges witnessed a decrease in allocation.

Policy Highlights

• Incentives to promote industry: Government to provide up to 90% of one time expenditure incurred on capital expenses involved in setting up Business Process Outsourcing (BPO) centres in the state. Further, 100% reimbursement will be provided on stamp duty paid by BPO and information technology firms.
• Promotion of banking: Rs 5,000 each will be given to tea plantation workers who have opened bank accounts.
• Pay Commission: The government will retrospectively implement the 7th Pay Commission’s recommendations from April 1, 2016. The estimated burden on the state is expected to be Rs 2,200 crore.  First instalment of the same will be released in April 2017.
• Rs 5 crore has been allocated to provide two-wheelers to 1,000 top-ranking girl students who pass high school in 2017.

Tax exemptions

• Hotels and lodging houses, including homestays in rural areas will be exempt from paying luxury tax.
• 50% entertainment tax exemption to permanent multiplexes for 3 years which screen Assamese/regional film on one of the screens.
• Cess on green tea leaf further reduced from 15paise/kg to 10paise/kg for small tea growers.
• Women self-help groups are exempted from stamp duty on documentation of bank loans up to Rs 2.5 lakh.

Assam’s Economy Economy Between 2012-13 and 2014-15, agriculture sector’s growth has declined (real) from 16.5% to 0.3%.  Over the same period, industrial sector’s growth increased from -5.5% in 2012-13 to 8.1% in 2013-14, to 5.1% in 2014-15.  Services saw the most growth of 12.2% in 2014-15, an increase from 2.1% in 2012-13.   Industrial production in the state declined by 1.7% and 1.8% in 2014-15 and 2015-16 respectively.  During the same period, the industrial production of the country grew by 2.8% and 2.4% respectively. Sources: Central Statistics Office; PRS. Unemployment Unemployment rate in Assam is slightly above the national average.  In 2015-16, unemployment rate in Assam is 4%, when compared to the national average of 3.7%.  In addition, unemployment rate has increased in the past few years.  In 2013-14, unemployment rate was 2.9%, which grew to 4% in 2015-16.

Budget Estimates for 2017-18

• The total expenditure in 2017-18 is targeted at Rs 85,923 crore. The revised estimate for the total expenditure in 2016-17 is Rs 83,017 crore, which is 6.1% (Rs 4,764 crore) more than the budgeted target of 2016-17. 
• The expenditure in 2017-18 is proposed to be met through receipts (other than borrowings) of Rs 73,467 crore and borrowings of Rs 11,265 crore. Total receipts for 2017-18 (other than borrowings) are expected to be 23.3% higher than the revised estimate of 2016-17. 

Table 1: Budget 2017-18 - Key figures (in Rs crore)

Notes: BE is Budget Estimate; RE is Revised Estimate. GSDP for 2016-17 BE and 2016-17 RE taken to be Rs 2,24,641 crore. 

Fiscal deficit = (Revenue receipts + Recovery of loans) – (Revenue expenditure + Capital outlay + Loans provided by the state)

Sources: Assam State Budget Documents 2017-18; PRS.

Expenditure in 2017-18

The total expenditure in 2016-17 is revised up from Rs 78,253 crore to Rs 83,017 crore.  Note that this is 98% increase in total expenditure over 2015-16. As a result, annual borrowings of the state has risen from Rs 5,597 crore to Rs 10673 crore.  This is a 94% increase.

• Government expenditures can be divided into (a) capital expenditure, which affects the assets and liabilities of the state, and (b) revenue expenditure, which includes the rest of the expenses.
• Total capital expenditure of Assam is proposed to be Rs 17,603 crore, which is an increase of 1.5% over the revised estimates of 2016-17. This includes expenditure which leads to creation of assets, and repayment of loans, among others. 
• Total revenue expenditure for 2017-18 is proposed to be Rs 68,319 crore, which is an increase of 4% over revised estimates of 2016-17. This expenditure includes payment of salaries, administration of government programs, etc. 

Table 2: Expenditure budget 2017-18 (in Rs crore)

Note:  Capital expenditure includes: i) spending that creates assets, ii) repayments on the loans taken by the government, and iii) loans provided by the government. 

Sources: Assam State Budget Documents 2017-18; PRS.  

Department expenditure in 2017-18

The departments listed below account for around 40% of the total budgeted expenditure of Assam in 2017-18.

Table 3: Department-wise expenditure for Assam Budget 2017-18 (in Rs crore)

Note: All amounts are net numbers. Sources: Assam Budget Speech 2017-18; PRS.

Other announcements:

• Zero interest loans: 100% interest subvention is proposed to be provided on agricultural loans of up to Rs. one lakh taken by farmers.
• Rs 667 crore has been allocated for infrastructure developments of professional colleges and universities under the Tejasvi Navadhitamastu Funds.
• Rs 1,200 crore has been allocated for six cities for infrastructure projects under the City Infrastructure Development Fund (CIDF).

Receipts in 2017-18

• The total revenue receipts for 2017-18 are estimated to be Rs 70,720 crore, an increase of 19.8 % over the revised estimates of 2016-17.

The tax revenue collection of 2016-17 has been revised down from Rs 15,224 crore to 12,328 crore.  This is a drop of 19%.

• State’s own tax revenue is expected to increase by 30.4% (Rs 3,742 crore) in 2017-18 over the revised estimates of 2016-17. Tax revenue in 2016-17 (RE) is estimated to be Rs 12,328 crore, which is 19% (Rs 2,896 crore) lower than the budgeted estimates.
• The tax to GSDP ratio is targeted at 6.2 % in 2017-18, which is higher than the revised estimate of 5.5% in 2016-17. This implies that growth in collection of taxes is expected to be higher than the growth in the economy.
• Non-tax revenue in 2017-18 is estimated to increase by 65.4% (Rs 2,951 crore) over the revised estimates of 2016-17. This is on account of higher receipts from petroleum extraction (70% increase).
• Grants from the centre are set to decrease by 7.6%, from Rs 22,923 crore in 2016-17 (RE), to Rs 21,170 crore in 2017-18. The other component of transfers from the centre is the state’s share in central taxes, which is estimated to increase by 35.2%, to Rs 26,015 crore in 2017-18.

Table 4: Break up of state government receipts (in Rs crore)

Sources: Assam State Budget Documents 2017-18; PRS.

Total own tax revenue of Assam is estimated to be Rs 16,070 crore in 2017-18.  The composition of the state’s tax revenue is shown in Figure 2.

Figure 1: Composition of Tax Revenue in 2017-18 (BE)

Tax Revenue: State Goods and Services Tax (SGST) is estimated to be the largest component (70%) of the tax revenue of the state.  SGST subsumes certain components of sales tax, and other central taxes such as service tax and union excise duty.   Sales tax, which will be partly subsumed into SGST during 2017-18 is expected to generate Rs 1,713 crore in 2017-18.   It may be noted that SGST has not been levied previously, and it is difficult to estimate its revenue.  In 2017-18, both state sales tax and SGST are estimated to collect Rs 12,936 crore.  This is 38% higher than the sales tax collection of 2016-17.

• In addition, revenue will be generated through levy of duty on electricity, state excise duties, stamp duties, taxes on vehicles, etc.
• Non Tax Revenue: Assam has estimated to generate Rs 7,464 crore through non-tax sources in 2017-18. This includes Rs 5,590 crore through royalties on petroleum and Rs 561 crore through forestry.

Deficits, Debts and FRBM Targets for 2017-18

The Fiscal Responsibility and Budget Management (FRBM) Act, 2005 of the state provides annual targets to progressively reduce the outstanding liabilities, revenue deficit and fiscal deficit of the state government. 

Revenue deficit:  It is the excess of revenue expenditure over revenue receipts.  A revenue deficit implies that the government needs to borrow in order to finance its expenses which do not create capital assets.  However, the budget estimates a revenue surplus of Rs 2,400 crore (or 0.9 % of SGDP) in 2017-18.  This implies that revenue receipts are expected to be higher than the revenue expenditure, resulting in a surplus.  The estimate indicates that the state is within the target of eliminating revenue deficit, prescribed by the 14^th Finance Commission.

In 2016-17, the fiscal deficit is estimated to be Rs 18,622 crore.  This is 8.29% of GSDP and higher than the 3% limit recommended by the 14th Finance Commission. This is driven by reduction of tax collection by 19% of the budget estimate and increase in expenditure by 6% over the budget estimate.

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 of the government.  A high fiscal deficit may imply a higher repayment obligation for the state in the future.  In 2017-18, fiscal deficit is estimated to be Rs 7,702 crore, which is 2.98% of the SGDP.   

Outstanding Liabilities:  It is the accumulation of borrowings over the years.  In 2017-18, the outstanding liabilities are expected at 19.31 % of SGDP.

Table 5: Budget targets for deficits for the state of Assam in 2017-18 (% of GSDP)

Year	Revenue	Fiscal	Outstanding Liabilities
	Deficit (-)/Surplus (+)	Deficit (-)/Surplus (+)
2015-16	2.71	1.49	17.75
2016-17 (RE)	-2.97	-8.29	18.77
2017-18 (BE)	0.93	-2.98	19.31
2018-19	0.78	-2.94	18.47
2019-20	0.77	-2.79	17.67

Note:  Outstanding numbers for 2016-17 are Budget estimates. 

Sources: Assam State Budget Documents 2017-18; PRS.

Figures 2 and 3 show the trend in deficits and outstanding liabilities from 2015-16 to 2017-18:

Figure 2: Revenue and Fiscal Deficit (as % of SGDP) Sources: Assam State Budget Documents; PRS.

Figure 3:Outstanding liabilities (as % of SGDP) Sources: Assam State Budget Documents; PRS.

 

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