The Finance Minister of Madhya Pradesh, Mr. Jagdish Devda, presented the Budget for the state for the financial year 2021-22 on March 2, 2021.   Note that due to the impact of COVID-19, 2020-21 was not a standard year with respect to the performance of the economy and government finances.  In this note, 2021-22 budget estimates have been compared to the actuals for 2019-20 (in terms of compounded annual growth rate or CAGR).  A comparison of the revised estimates for 2020-21 and budget estimates for 2021-22 has been provided in the Annexure.

Budget Highlights

• The Gross State Domestic Product (GSDP) of Madhya Pradesh for 2021-22 (at current prices) is projected to be Rs 11,32,116 crore.  This is equivalent to a 10% annual growth over 2019-20.  In 2021-22 GSDP is estimated to be 23.4% higher than the revised estimate of GSDP for 2020-21 (Rs 9,17,555 crore).  In 2020-21, GSDP (at current prices) is estimated to contract by 2.1% from the previous year.
   
• Total expenditure for 2021-22 is estimated to be Rs 2,34,918 crore, an 11% annual increase over the expenditure in 2019-20.
   
• Total receipts (excluding borrowings) for 2021-22 are estimated to be Rs 1,66,525 crore, an annual increase of 6% over the actual receipts for 2019-20.   In 2020-21, as per the revised estimates, total receipts (excluding borrowings) are estimated to be Rs 1,37,566 crore, which is 7% lower in comparison to 2019-20.
   
• Revenue deficit for 2021-22 is estimated to be Rs 7,953 crore, which is 0.7% of the GSDP.  In 2020-21, as per the revised figures, revenue deficit is estimated at Rs 21,051 crore (2.29% of GSDP), as compared to the budgeted estimate of Rs 17,189 crore (1.81% of GSDP).  
   
• Fiscal deficit for 2021-22 is targeted at Rs 50,598 crore (4.47% of GSDP).  In 2020-21, the revised estimate for fiscal deficit is expected to be 5.66% of GSDP, higher than the budget estimate of 4.96% of GSDP.
   
• Sectors:  Allocation towards water supply and sanitation had the highest annual increase of 54% over 2019-20, followed by health and family welfare (10%), and education, sports, arts and culture (10%).  An annual decrease of 2% is seen in the allocation for construction of roads and bridges, and rural development between actual expenditure for 2019-20 and estimates for 2021-22. 

Policy Highlights

• Agriculture:  The Mukhya Mantri Krishak Fasal Uparjan Sahayata Yojana will be introduced to provide financial aid to farmers through the Department for Civil Food Supplies and the state cooperative marketing federation.  The scheme has been allocated Rs 2,000 crore for 2021-22. 
   
• Education:   The CM Rise scheme will be launched to upgrade 9,200 schools with modern infrastructure.  For 2021-22, the scheme has been allocated Rs 1,500 crore, to be used to modernise 350 schools.
   
• Self-Employment: The Mukhya Mantri Swa-Rozgar Yojana will be launched to provide loans at low interest rates to encourage self-employment among youth.  The scheme has been allocated Rs 112 crore.

Madhya Pradesh’s Economy GSDP:  Madhya Pradesh’s GSDP (at constant prices) grew by 7.6% in 2019-20.  In comparison, the country’s GDP growth rate was lower at 4%.   Sectors:     In 2019-20, agriculture, manufacturing, and services sectors contributed to 35%, 25%, and 40% of the economy.     Per capita GSDP:  The per capita GSDP of Madhya Pradesh in 2019-20 (at constant prices) was Rs 67,770, which is 6% higher than the corresponding figure in 2018-19.   Unemployment:  As per the Periodic Labour Force Survey 2018-19 (for July 2018-June 2019), the unemployment rate in Madhya Pradesh was 3.5%, as compared to 5.8% in the country.

Figure  1 : Growth in GSDP and sectors in Madhya Pradesh at constant prices (2011-12)   Note: These numbers are as per constant prices (2011-12) which implies that the growth rate is adjusted for inflation. Agriculture includes mining. Sources: Ministry of Statistics and Programme Implementation; PRS.

• Total expenditure in 2021-22 is targeted at Rs 2,34,918 crore.  This is an annual increase of 11% over 2019-20.  This expenditure is proposed to be met through receipts (other than borrowings) of Rs 1,66,525 crore and borrowings of Rs 67,258 crore.  Total receipts for 2021-22 (other than borrowings) are expected to register an annual increase of 6% over 2019-20.
   
• As per the revised estimates for 2020-21, total expenditure is estimated to increase by 1% over the budget estimates.  In 2020-21, receipts (other than borrowings) are estimated to increase by 0.4% from the budget to revised stage.  Borrowings in 2020-21 are estimated to increase by 2% from the budget to revised stage.
   
• The state expects a revenue deficit of Rs 7,953 crore in 2021-22 (0.7% of GSDP).  In 2020-21, revenue deficit is estimated to be Rs 21,051 crore at the revised stage, which is 22% higher as compared to the revenue deficit of Rs 17,189 crore estimated in the budget.  Fiscal deficit for 2021-22 is estimated to be Rs 50,598 crore (4.47% of GSDP).  In 2020-21, fiscal deficit is estimated to increase to 5.66% of GSDP at the revised stage as compared to 4.96% of GSDP estimated at the budget stage.    

Table  1 : Budget 2021-22 - Key figures (in Rs crore)

Items	2019-20 Actuals	2020-21 Budgeted	2020-21 Revised	% change from BE 2020-21 to RE 2020-21	2021-22 Budgeted	Annualised Change (2019-20 to 2021-22 BE)
Total Expenditure	1,91,606	2,00,343	2,01,631	1%	2,34,918	11%
A. Receipts (except borrowings)	1,47,812	1,36,962	1,37,566	0.4%	1,66,525	6%
B. Borrowings	34,364	63,448	64,411	2%	67,258	40%
Total Receipts (A+B)	1,82,176	2,00,410	2,01,976	1%	2,33,783	13%
Revenue Deficit	2,692	17,189	21,051	22%	7,953	72%
As % of GSDP	0.29%	1.81%	2.29%	0.70%
Fiscal Deficit	32,860	47,035	51,941	10%	50,598	24%
As % of GSDP	3.51%	4.96%	5.66%	4.47%
Primary Deficit	18,644	30,574	35,482	16%	29,655	26%
As % of GSDP	1.99%	3.22%	3.87%	2.62%

Note: BE is Budget Estimates; RE is Revised Estimates. The budget documents have not taken the revenue under head 0028 (other taxes on income and expenditure) into account for calculating tax revenue, so necessary adjustments have been made to the figures for the analysis.

Sources: Madhya Pradesh Budget Documents 2021-22; PRS.

Capital Outlay Madhya Pradesh’s capital outlay for 2021-22 is estimated to be Rs 40,667 crore, which is an 18% annual increase over 2019-20.  The revised estimate for capital outlay in 2020-21 is Rs 29,671 crore which is 1.5% higher than the capital outlay in 2019-20.  Irrigation and flood control accounts for 21% of the total capital outlay, followed by water supply and sanitation (19%), roads and bridges (14%), and rural development (12%).

• Capital expenditure for 2021-22 is proposed to be Rs 61,947 crore, which is an annual increase of 23% over the actual expenditure in 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.  
   
• Revenue expenditure for 2021-22 is proposed to be Rs 1,72,971 crore, which is an annual increase of 7% over 2019-20.  This expenditure includes the payment of salaries, pensions, and interest.   In 2020-21, revenue expenditure is estimated to be 3% higher than the budget estimate.
   
• In 2021-22, expenditure on debt servicing is estimated to be Rs 38,737 crore, an annual increase of 24% over 2019-20.  This includes debt repayment of Rs 17,794 crore, and interest payment of Rs 20,943 crore. 

Table  2 : Expenditure budget 2021-22 (in Rs crore)

Items	2019-20 Actuals	2020-21 Budgeted	2020-21 Revised	% change from BE 2020-21 to RE 2020-21	2021-22 Budgeted	Annualised Change (2019-20 to 2021-22 BE)
Capital Expenditure	41,162	46,233	43,085	-7%	61,947	23%
of which Capital Outlay	29,241	28,350	29,671	5%	40,667	18%
Revenue Expenditure	1,50,444	1,54,110	1,58,545	3%	1,72,971	7%
Total Expenditure	1,91,606	2,00,343	2,01,631	1%	2,34,918	11%
A. Debt Repayment	10,934	16,346	12,124	-26%	17,794	28%
B. Interest Payments	14,217	16,460	16,459	0%	20,943	21%
Debt Servicing (A+B)	25,150	32,806	28,583	-13%	38,737	24%

Note: BE is Budget Estimates; RE is Revised Estimates.  Capital outlay denotes expenditure which leads to the creation of assets.

Sources: Madhya Pradesh Budget Documents 2021-22; PRS. 

The sectors listed below account for 64% of the total expenditure on all sectors by the state in 2021-22.  A comparison of Madhya Pradesh’s expenditure on key sectors with that by other states is given in Annexure 1.  

Table  3 : Sector-wise expenditure under Madhya Pradesh Budget 2021-22 (in Rs crore)

Sector	2019-20 Actuals	2020-21 BE	2020-21 RE	2021-22 BE	Annualised Change (2019-20 to 2021-22 BE)	Budget provisions 2021-22
Education, Sports, Arts, and Culture	30,271	33,408	32,010	36,344	10%	Rs 9,793 crore has been allocated for the establishment of primary schools, and Rs 5,329 crore has been allocated for secondary education.  Rs 4,027 crore has been allocated towards higher secondary education.
Energy	14,640	10,095	12,286	16,745	7%	Rs 2,581 crore has been allocated to Atal Grah Jyoti Yojana.
Agriculture and allied activities	13,774	10,326	10,840	16,142	8%	Rs 4,592 crore has been allocated to the Atal Krishi Jyoti Yojana.Rs 3,200 crore has been allocated to the Mukhya Mantri Kisan Kalyan Yojana.
Rural Development	12,718	13,904	14,025	12,305	-2%	Rs 2,925 crore has been allocated to the Pradhan Mantri Gram Sadak Yojana. Rs 2,500 crore has been allocated to the Pradhan Mantri Awas Yojana (Grameen).
Health and Family Welfare	9,580	10,164	9,467	11,619	10%	Rs 3,035 crore has been allocated to the National Health Mission.  Rs 1,208 crore has been allocated for hospitals and dispensaries at district level.
Social Welfare and Nutrition	10,391	10,612	12,562	10,892	2%	Rs 1,272 crore has been allocated towards the anganwadi scheme.
Irrigation and Flood Control	10,118	8,144	10,258	9,860	-1%	Rs 1,996 crore has been allocated for the construction of canals, and Rs 1,885 crore has been allocated for the construction of dams.
Water Supply and Sanitation	3,557	4,688	4,897	8,412	54%	Rs 5,762 crore has been allocated towards the Jal Jeevan Mission.
Police	6,811	7,512	7,270	8,062	9%	Rs 405 crore has been allocated towards the Mukhya Mantri Police Awas Yojana.
Roads and Bridges	7,304	6,303	6,187	6,957	-2%	Rs 850 crore has been allocated for the repair and upgradation of roads.  Rs 620 crore has been allocated for the construction of roads in rural areas.
% of total expenditure on all sectors	66%	63%	64%	64%

Sources: Madhya Pradesh Budget Documents 2021-22; PRS.

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 2021-22, Madhya Pradesh is estimated to spend Rs 87,573 crore on committed expenditure, which is 53% of its revenue receipts.  This is an annual increase of 22% over 2019-20.  This comprises spending on salaries (30% of revenue receipts), pension (10%), and interest payments (13%).  In 2020-21, payment towards pension decreased by 13% while payment towards salaries increased by 10% from the budget to revised stage.

Table  4 : Committed expenditure in 2021-22 (in Rs crore)

Items	2019-20 Actuals	2020-21 BE	2020-21 RE	% change from BE 2020-21 to RE 2020-21	2021-22  BE	Annualised Change (2019-20 to 2021-22 BE)
Salaries	32,878	38,112	42,098	10%	49,717	23%
Pensions	12,053	16,993	14,841	-13%	16,913	18%
Interest	14,217	16,460	16,459	0%	20,943	21%
Total Committed Expenditure	59,148	71,565	73,397	3%	87,573	22%

Sources: Madhya Pradesh Budget Documents 2021-22; PRS.

• Total revenue receipts for 2021-22 are estimated to be Rs 2,33,783 crore, an annual increase of 13% over 2019-20.  Of this, Rs 76,996 crore (47%) will be raised by the state through its own resources, and Rs 88,022 crore (53%) will come from the centre.  Resources from the centre will be in the form of state’s share in central taxes (32% of revenue receipts) and grants (22% of revenue receipts).  In 2021-22, the state has also estimated receipts of Rs 1,434 crore through disinvestment (i.e., sale of the government’s assets).
   
• Devolution:  In 2021-22, receipts from the state’s share in central taxes (devolution) are estimated to register an annual increase of 3% over 2019-20.   However, as per the 2020-21 revised estimate, devolution receipts are estimated to decrease by 6% as compared to the budget estimate.  This is due to a 30% cut in the union budget for devolution to states, from Rs 7,84,181 crore to Rs 5,49,959 crore at the revised stage.
   
• State’s own tax revenue:  Total own tax revenue of Madhya Pradesh is estimated to be Rs 65,254 crore in 2021-22, an annual increase of 8% over the state’s actual tax revenue in 2019-20.  In 2020-21, as per the revised estimate, state’s own tax revenue is estimated to be 9% higher than the budget estimate.  

Table  5 : Break up of state government receipts (in Rs crore)

Items	2019-20 Actuals	2020-21 BE	2020-21 RE	% change from BE 2020-21 to RE 2020-21	2021-22  BE	Annualised Change (2019-20 to 2021-22 BE)
State's Own Tax	55,933	49,126	53,472	9%	65,254	8%
State's Own Non-Tax	10,350	8,860	9,715	10%	11,742	7%
Share in Central Taxes	49,518	46,025	43,373	-6%	52,247	3%
Grants-in-aid from Centre	31,952	32,910	30,934	-6%	35,775	6%
Total Revenue Receipts	1,47,753	1,36,921	1,37,494	0%	1,65,018	6%
Borrowings	34,364	63,448	64,411	2%	67,258	40%
Other receipts	59	41	71	73%	1,507	404%
Total Capital Receipts	34,424	63,489	64,482	2%	68,765	41%
Total Receipts	1,82,176	2,00,410	2,01,976	1%	2,33,783	13%

Note: The budget documents have not taken the revenue under head 0028 (other taxes on income and expenditure) into account for calculating tax revenue, so necessary adjustments have been made to the figures for the analysis.

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 in their GST revenue, failing which compensation grants are provided to states to meet the shortfall.  These grants are funded through the GST compensation cess levied by the centre.  As the cess collection is not sufficient to meet the compensation requirement of states in 2020-21, a part of their requirement will be met through loans from the centre (which will be repaid using future cess collection). As per the revised estimate of 2020-21, Madhya Pradesh is estimated to receive Rs 4,158 crore in the form of GST compensation grants which is 8% lower than the grants received in 2019-20 (Rs 4,531 crore).  In 2020-21, the state has estimated Rs 4,542 crore to come in the form of back-to-back loans from the Centre against GST compensation grants.     In 2021-22, Rs 5,322 crore is expected as GST compensation grants, which is an annual increase of 8% over the grants received in 2019-20.

Sources: Madhya Pradesh Budget Documents 2021-22; PRS.

• In 2021-22, State’s GST revenue (SGST) is estimated to be Rs 23,000 crore, which is the largest source (35%) of the state’s own tax revenue.  This is an annual increase of 6% over the actual SGST revenue in 2019-20.   In 2020-21, SGST is estimated to be 9% more than the budget estimate.  
   
• In 2021-22, Madhya Pradesh is expected to generate Rs 12,109 crore through the collection of state excise, an annual increase of 6% over 2019-20.  In 2020-21, the state excise collection is estimated to increase by 3% over the budget estimate.
   
• In 2021-22, Rs 14,240 crore is estimated to be generated through Sales Tax and VAT, an annual increase of 12% over 2019-20.

Table  6 : Some of the major state’s own tax revenue sources (in Rs crore)

Head	2019-20 Actuals	2020-21 BE	2020-21 RE	% change from BE 2020-21 to RE 2020-21	2021-22  BE	Annualised Change (2019-20 to 2021-22 BE)	% of Revenue Receipts in 2021-22
State's own tax revenue	55,933	49,126	53,472	9%	65,254	8%	40%
State GST (SGST)	20,448	16,111	17,537	9%	23,000	6%	14%
Sales Tax/VAT	11,258	11,208	12,750	14%	14,240	12%	9%
State Excise	10,829	9,000	9,300	3%	12,109	6%	7%
Stamps Duty and Registration Fees	5,569	5,000	5,800	16%	6,495	8%	4%
Taxes on Vehicles	3,251	2,500	2,640	6%	3,600	5%	2%
Taxes and Duties on Electricity	2,268	3,000	3,150	5%	3,100	17%	2%
GST Compensation Grants	4,531	4,728	4,158	-12%	5,322	8%	3%

Sources: Madhya Pradesh Budget Documents 2021-22; PRS.

The Madhya 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 deficit: It is the excess of revenue expenditure over revenue receipts.  A revenue deficit implies that the government needs to borrow to finance revenue expenditure (which do not increase its assets or reduces its liabilities).  The 2021-22 budget estimates a revenue deficit of Rs 7,953 crore (0.7% of the GSDP) in 2021-22.  The 15^th Finance Commission has not recommended revenue deficit grants for Madhya Pradesh for 2021-26.

Fiscal Roadmap for 2021-26 The 15th Finance Commission recommended the following fiscal deficit targets for states for the 2021-26 period (as a % of GSDP): (i) 4% for 2021-22, (ii) 3.5% for 2022-23, and (iii) 3% for 2023-26.     The Commission estimates that total liabilities for Madhya Pradesh will increase from 31.3% of GSDP in 2020-21 to 33.7% of GSDP in 2025-26. If a state is unable to fully utilise the sanctioned borrowing limit as specified above in any of the first four years (2021-25), it can avail the unutilised borrowing amount in subsequent years (within the 2021-26 period).  Additional borrowing worth 0.5% of GSDP will be allowed each year for the first four years (2021-25) upon undertaking certain power sector reforms including: (i) reduction in operational losses, (ii) reduction in revenue gap, (iii) reduction in payment of cash subsidy by adopting direct benefit transfer, and (iv) reduction in tariff subsidy as a percentage of revenue.

Fiscal deficit:  It is the excess of total expenditure over total receipts.  This gap is filled by borrowings which leads to an increase in total liabilities.  In 2021-22, the fiscal deficit is estimated to be Rs 50,598 crore (4.47% of GSDP).  As per the revised estimate, in 2020-21, the fiscal deficit of the state is expected to be 5.66% of GSDP, which is higher than the budget estimate of 4.96%.  

Enhanced borrowing limit in 2020-21: Given the situation due to COVID-19, the central government permitted states to increase their fiscal deficit up to 5% of GSDP in 2020-21.  All states were allowed to increase their fiscal deficit up to 4% of GSDP.  The remaining 1% of GSDP is conditional on the implementation of reforms by states in the following areas (0.25% of GSDP for each reform): (i) one nation one ration card, (ii) ease of doing business, (iii) urban local body/ utility, and (iv) power distribution.  As of February, 2021, Madhya Pradesh is eligible to borrow Rs 8,542 crore for implementing the four reforms. 

Outstanding debt:  Outstanding debt is the accumulation of total borrowings at the end of a financial year.  In 2021-22, the outstanding debt is expected to be 28.5% of the GSDP, higher than the revised estimate for 2020-21 (28.8% of GSDP).  It is estimated to increase from 23.9% in 2018-19 to 28.5% in 2021-22.

Table  7 : Budget targets for deficits for Madhya Pradesh (% of GSDP)

Year	Revenue Balance	Fiscal Balance	Outstanding Debt
2018-19 (Actuals)	1.1%	-2.7%	23.9%
2019-20 (Actuals)	-0.3%	-3.5%	24.3%
2020-21 (Revised)	-2.3%	-5.7%	28.8%
2021-22 (Budget)	-0.7%	-4.5%	28.5%
2022-23	>0	4%	31.7%
2023-24	>0	4%	31.8%
2024-25	>0	3%	31.4%

Note: Outstanding debt includes outstanding debt under Internal Debt, Loans and Advances from Centre, Small Savings, Provident Fund, and Insurance and Pension Fund.  Negative values indicate deficit and positive values indicate surplus.

Sources: Madhya Pradesh Budget Documents 2021-22; PRS.

Figure  2 : Revenue and Fiscal Balance (% of GSDP)  Note: Negative values indicate deficit and positive values indicate surplus; RE is Revised Estimates; BE is Budget estimates. Sources: Madhya Pradesh Budget Documents 2021-22; PRS.

Figure  3 : Outstanding debt targets (as % of GSDP) Note: RE is Revised Estimates; BE is budget estimates. Sources: Madhya Pradesh Budget Documents 2021-22; PRS.

Annexure 1:  Comparison of states’ expenditure on key sectors