Madhya Pradesh Budget Analysis 2022-23

 The Finance Minister of Madhya Pradesh, Mr. Jagdish Devda, presented the Budget for the state for the financial year 2022-23 on March 9, 2022.

Budget Highlights

• The Gross State Domestic Product (GSDP) of the state for 2022-23 (at current prices) is projected to be Rs 11,51,049 crore.  This is a growth of 11.1% over the revised estimate of GSDP for 2021-22 (Rs 10,36,048 crore).  In 2021-22, GSDP is estimated to grow at 12.9% over the previous year (at current prices).
• Expenditure (excluding debt repayment) in 2022-23 is estimated to be Rs 2,47,715 crore, a 14% increase over the revised estimates of 2021-22 (Rs 2,17,813 crore).   In addition, debt of Rs 24,114 crore will be repaid by the state in 2022-23.  In 2021-22, expenditure (excluding debt repayment) is estimated to be 0.3% higher than the budget estimate.
• Receipts (excluding borrowings) for 2022-23 are estimated to be Rs 1,95,204 crore, an increase of 12% over the revised estimates of 2021-22 (Rs 1,74,526 crore).  In 2021-22, receipts (excluding borrowings) are estimated to be 5% higher than the budget estimate (Rs 1,66,185 crore).  
• Fiscal deficit for 2022-23 is targeted at Rs 52,511 crore (4.56% of GSDP).   In 2021-22, as per the revised estimates, fiscal deficit is expected to be 4.18% of GSDP, lower than the budget estimate of 4.50% of GSDP.
• Revenue deficit for 2022-23 is estimated to be Rs 3,736 crore, which is 0.32% of the GSDP.  In 2021-22, the state is estimated to observe a revenue deficit of 0.55% of GSDP, as compared to a revenue deficit of 0.73% of GSDP estimated at the budget stage.

Policy Highlights

• Welfare: For government servants, the state will increase the dearness allowance from 20% to 31%. 
• Medical education: MBBS seats in the state will be increased from the existing 2,350 to 3,250 seats.  Further, 22 new medical colleges will be functional in the state. 
• Electric Mobility: The state government has announced that it will install a total of 217 EV charging stations across Bhopal, Gwalior, Jabalpur, and Indore.   

Madhya Pradesh’s Economy GSDP:  Madhya Pradesh’s GSDP (at constant prices) saw a negative growth of 3.4% in 2020-21.  In comparison, national GDP registered a negative growth of 6.6% in 2020-21.  In 2020-21, the services sector of Madhya Pradesh witnessed a contraction of 8.9% whereas the manufacturing sector contracted by 3.9%.  Sectors:  In 2020-21, at current prices, agriculture, manufacturing, and services sectors contributed to 47%, 19%, and 34% of the economy, respectively. Per capita GSDP:  The per capita GSDP of Madhya Pradesh in 2020-21 (at current prices) was Rs 1,09,181; 3.4% lower than the corresponding figure in 2019-20 (Rs 1,13,079).  In comparison, the per capita GDP at the national level was Rs 1,46,087 (at current prices).

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

 Budget Estimates for 2022-23

• Expenditure (excluding debt repayment) in 2022-23 is targeted at Rs 2,47,715 crore.  This is an increase of 14% over the revised estimate of 2021-22 (Rs 2,17,813 crore).   This expenditure is proposed to be met through receipts (excluding borrowings) of Rs 1,95,204 crore and net borrowings of Rs 51,829 crore.  Receipts (excluding borrowings) for 2022-23 are expected to register an increase of 12% over the revised estimate of 2021-22.  In 2021-22, receipts are estimated to be 5% higher than the budget estimates.
• In 2022-23, the state is estimated to observe a revenue deficit of Rs 3,736 crore, which is 0.32% of its GSDP.  In comparison, in 2021-22, the state is expected to observe a revenue deficit of Rs 5,701 crore (0.55% of GSDP).  
• Fiscal deficit in 2022-23 is estimated to be 4.56% of GSDP which is higher than the limit of 4% of GSDP permitted by the central government as per the Union Budget 2022-23 (of which, 0.5% of GSDP will be made available upon undertaking power sector reforms).  In 2021-22, the state has estimated a fiscal deficit of 4.18% of GSDP, lower than the limit of 4.5% of GSDP permitted by the central government (of which, 0.5% of GSDP becomes available upon undertaking power sector reforms).  

Table  1 : Budget 2022-23 - Key figures (in Rs crore)

Items	2020-21 Actuals	2021-22 Budgeted	2021-22 Revised	% change from BE 2021-22 to RE 2021-22	2022-23 Budgeted	% change from RE 2021-22 to BE 2022-23
Total Expenditure	2,09,076	2,34,918	2,32,642	-1%	2,71,830	17%
(-) Repayment of debt	12,757	17,794	14,829	-17%	24,114	63%
Net Expenditure (E)	1,96,319	2,17,123	2,17,813	0%	2,47,715	14%
Total Receipts	2,11,620	2,33,443	2,29,437	-2%	2,71,148	18%
(-) Borrowings	65,171	67,258	54,911	-18%	75,943	38%
Net Receipts (R)	1,46,450	1,66,185	1,74,526	5%	1,95,204	12%
Fiscal Deficit (E-R)	49,870	50,938	43,287	-15%	52,511	21%
as % of GSDP	5.44%	4.50%	4.18%	4.56%
Revenue Balance*	-18,356	-8,293	-5,701	-31%	-3,736	-34%
as % of GSDP	-2.00%	-0.73%	-0.55%	-0.32%
Primary Deficit	33,952	29,995	23,246	-23%	30,345	31%
as % of GSDP	3.70%	2.65%	2.24%	2.64%

Note: *Negative sign indicates a deficit, positive sign indicates a surplus.  BE is Budget Estimates; RE is Revised Estimates.

Sources: Madhya Pradesh Budget Documents 2022-23; Madhya Pradesh Economic Survey 2021-22; PRS.

Expenditure in 2022-23

Revenue expenditure in 2022-23 is estimated to be Rs 1,98,916 crore, which is an increase of 12% over the revised estimate of 2021-22 (Rs 1,77,398 crore).  This expenditure includes the payment of salaries, pensions, interest, and subsidies.     In 2021-22, as per the revised estimates, revenue expenditure is estimated to be 3% higher than the budget estimate. Capital outlay in 2022-23 is estimated to be Rs 45,686 crore, which is an increase of 23% over the revised estimate of 2021-22 (Rs 37,089 crore).  Capital outlay comprises expenditure towards creation of assets.  This includes expenditure on building schools, hospitals, and roads and bridges.     Note that the state estimates Rs 6,500 crore on account of the long-term loan for capital outlay from the central government.   This is an increase of 456% from the amount received in 2021-22 (Rs 1,167 crore).  In 2021-22, capital outlay by the state is estimated to be 9% lower than the budget estimate.

Fiscal space for capital outlay In 2022-23, the estimated fiscal deficit of Madhya Pradesh is 4.56% of GSDP.  It is higher than the limit of 4% of GSDP permitted by the central government in 2022-23 as per the Union Budget. In 2022-23, revenue expenditure is estimated to be 80% of the total expenditure (excluding debt repayment).     Further, interest payments have increased from Rs 15,918 crore in 2020-21 to Rs 22,166 crore in 2022-23.     With an increase in the fiscal deficit, this may go up even further.  Additionally, with the state being in revenue deficit, the amount received from borrowings may be utilised for revenue expenditure.

Table  2 : Expenditure Budget 2022-23 (in Rs crore)

Items	2020-21 Actuals	2021-22 Budgeted	2021-22 Revised	% change from BE 2021-22 to RE 2021-22	2022-23 Budgeted	% change from RE 2021-22 to BE 2022-23
Revenue Expenditure	1,64,733	1,72,971	1,77,398	3%	1,98,916	12%
Capital Outlay	30,356	40,667	37,089	-9%	45,686	23%
Loans given by the state	1,230	2,985	2,826	-5%	3,114	10%
Net Expenditure	1,96,319	2,17,123	2,17,813	0.3%	2,47,715	14%

Note: The Net Expenditure includes Rs 500 crore allocation from the contingency fund in 2021-22 BE and RE. 

Sources: Madhya Pradesh Budget Documents 2022-23; PRS.

Committed expenditure: Committed expenditure of a state typically includes expenditure on payment of salaries, pensions, and interest.  Allocation of a large portion of the budget towards committed expenditure items limits the state’s flexibility to decide on other expenditure priorities such as developmental schemes and capital outlay.  In 2022-23, Madhya Pradesh is estimated to spend Rs 95,627 crore on committed expenditure items, which is 49% of its revenue receipts.   This comprises spending on salaries (28% of revenue receipts), pension (10%), and interest payments (11%).  Committed expenditure in 2022-23 is estimated to increase by 16% over the revised estimate of 2021-22.  Spending on pension is estimated to increase by 18% and spending on salaries and interest is estimated to increase by 19% and 11%, respectively.

Table  3 : Committed Expenditure in 2022-23 (in Rs crore)

Committed Expenditure	2020-21 Actuals	2021-22 Budgeted	2021-22 Revised	% change from BE 2021-22 to RE 2021-22	2022-23 Budgeted	% change from RE 2021-22 to BE 2022-23
Salaries	39,366	49,717	45,650	-8%	54,101	19%
Pension	14,671	16,913	16,451	-3%	19,360	18%
Interest	15,918	20,943	20,041	-4%	22,166	11%
Committed Expenditure	69,955	87,573	82,142	-6%	95,627	16%

Sources: Madhya Pradesh Budget Documents 2022-23; PRS.

Sector-wise expenditure: The sectors listed below account for 63% of the total expenditure on sectors by the state in 2022-23.  A comparison of Madhya Pradesh’s expenditure on the key sectors with that by other states is shown in Annexure 1.

Table  4 : Sector-wise expenditure under Madhya Pradesh Budget 2022-23 (in Rs crore)

Sector	2020-21 Actuals	2021-22 Budgeted	2021-22 Revised	2022-23 Budgeted	% change from RE 2021-22 to BE 2022-23	Budget provisions
Education, Sports, Arts, and Culture	30,109	36,344	31,614	39,326	24%	Rs 3,908 crore has been allocated towards Samagra Shiksha Abhiyan for school education. Rs 1,157 crore has been allocated towards CM RISE scheme
Energy	15,469	16,745	17,082	21,816	28%	Rs 9,414 crore has been allocated towards assistance for Electricity Boards.
Agriculture and allied activities	13,324	16,142	17,128	16,784	-2%	Rs 2,000 crore has been allocated towards PM-Fasal Bima Yojana
Rural Development	14,132	12,305	15,078	14,313	-5%	Rs 3,500 crore has been allocated towards MGNREGS
Health and Family Welfare	9,687	11,620	12,012	13,903	16%	Rs 1,180 crore has been allocated towards district hospitals Rs 1,033 crore has been allocated towards primary health centres
Social Welfare and Nutrition	13,041	10,892	10,970	11,730	7%	Rs 1,144 crore has been allocated towards Indira Gandhi National Old age pension
Housing	5,996	3,180	5,173	10,691	107%	Rs 1,500 crore has been allocated for housing for all yojana
Police	6,900	8,062	7,876	8,813	12%	Rs 4,995 crore has been allocated towards district police
Water Supply and Sanitation	5,034	8,412	7,631	8,657	13%	Rs 6,300 crore has been allocated towards Jal Jeevan Mission
Irrigation and Flood Control	11,015	9,860	11,234	8,438	-25%	Rs 6,821 crore has been allocated towards capital outlay on Irrigation and flood control
% of total expenditure on all sectors	64%	63%	63%	63%	0%

Sources: Madhya Pradesh Budget Documents 2022-23; PRS.

 Receipts in 2022-23

• Total revenue receipts for 2022-23 are estimated to be Rs 1,95,180 crore, an increase of 14% over the revised estimate of 2021-22.  Of this, Rs 86,478 crore (44%) will be raised by the state through its own resources (tax and non-tax revenue), and Rs 1,08,702 crore (56%) will come from the centre.  Resources from the centre will be in the form of state’s share in central taxes (33% of revenue receipts) and grants (23% of revenue receipts).
• Devolution:  In 2022-23, the state estimates to receive Rs 64,107 crore in the form of share in central taxes, an increase of 10% over the revised estimates of 2021-22.
• State’s own tax revenue:  In 2022-23, total own tax revenue of the state is estimated to be Rs 72,860 crore, an increase of 13% over the revised estimate of 2021-22.  State’s own tax revenue as a percentage of GSDP is estimated to rise from 5.9% of GSDP in 2020-21 (as per actuals) to 6.3% of GSDP in 2022-23 (as per budget estimate).  In 2021-22, own tax as percentage of GSDP has been revised to 6.2% of GSDP as compared to the budget estimate of 5.7% of GSDP.
• State’s non-tax revenue: In 2022-23, the state is estimated to earn Rs 13,618 crore in the form of state’s own non-tax revenue, a 12% increase over the revised estimates of 2021-22.  In 2021-22, state’s own non-tax revenue is estimated to register an increase of 3% over the budget estimates.

Table  5 : Break-up of the state government’s receipts (in Rs crore)

Items	2020-21 Actuals	2021-22 Budgeted	2021-22 Revised	% change from BE 2021-22 to RE 2021-22	2022-23 Budgeted	% change from RE 2021-22 to BE 2022-23
State's Own Tax	54,484	64,914	64,297	-1%	72,860	13%
State's Own Non-Tax	9,902	11,742	12,126	3%	13,618	12%
Share in Central Taxes	46,889	52,247	58,378	12%	64,107	10%
Grants from Centre	35,102	35,775	36,896	3%	44,595	21%
Revenue Receipts	1,46,377	1,64,677	1,71,697	4%	1,95,180	14%
Non-debt Capital Receipts	73	1,508	2,829	88%	24	-99%
Net Receipts	1,46,450	1,66,185	1,74,526	5%	1,95,204	12%

Note: BE is Budget Estimates; RE is Revised Estimates.  

Sources: Madhya Pradesh Budget Documents 2022-23; PRS.

In 2022-23, SGST is estimated to be the largest source of own tax revenue (34%).  SGST revenue in 2022-23 is estimated at Rs 25,000 crore, which is a 16% increase over the revised estimates of 2021-22.  In 2021-22 as per revised estimates, SGST revenue is estimated to be 6% lower than the budget estimate.   In 2022-23, revenue from Sales Tax/VAT is expected to increase by 5% over revised estimates of 2021-22.  Sales Tax/VAT is the second largest source of own tax revenue after SGST in 2022-23.  State excise is estimated to increase by 28% in 2022-23 over the 2021-22 revised estimates.

GST Compensation ends in June 2022 When the GST was introduced, the central government guaranteed states a 14% compounded annual growth in their GST revenue for a period of five years.     Any shortfall in a state’s GST revenue from this level is covered by the Centre by providing compensation grants to the state.  This guarantee ends in June 2022.  During 2018-22, Madhya Pradesh has relied on GST compensation grants to achieve the guaranteed SGST revenue level.  In 2021-22, Madhya Pradesh is estimated to receive Rs 11,121 crore in the form of GST compensation grants, which is about 17% of its own tax revenue.     Hence, beyond June 2022, Madhya Pradesh might see a decline in the level of revenue receipts.

Table  6 : Major sources of state’s own-tax revenue (in Rs crore)

Head	2020-21 Actuals	2021-22 Budgeted	2021-22 Revised	% change from BE 2021-22 to RE 2021-22	2022-23 Budgeted	% change from RE 2021-22 to BE 2022-23
State GST	17,257	23,000	21,600	-6%	25,000	16%
Sales Tax/ VAT	13,296	14,240	16,154	13%	16,968	5%
State Excise	9,526	12,109	10,340	-15%	13,255	28%
Stamps Duty and Registration Fees	6,817	6,495	7,400	14%	8,200	11%
Taxes on Vehicles	2,749	3,600	3,200	-11%	3,700	16%
Land Revenue	504	850	767	-10%	1,241	62%
Taxes and Duties on Electricity	2,608	3,100	3,750	21%	3,364	-10%
GST Compensation Grants	5,293	5,322	4,110	-23%	5,000	22%
GST Compensation Loans	4,542	7,011

Sources: Madhya Pradesh Budget Documents 2022-23; PRS.

Deficits and Debt Targets for 2022-23

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 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 increase its assets or reduces its liabilities.  In 2022-23, Madhya Pradesh is estimated to observe a revenue deficit of Rs 3,736 crore, which is 0.32% of the GSDP.  According to revised estimates, Madhya Pradesh is expected to have a revenue deficit of Rs 5,701 crore (0.55% GSDP) in 2021-22.  As per the medium term fiscal plan presented along with the budget, the state is expected to have a revenue surplus in the next three financial years.   

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 state government.  In 2022-23, the fiscal deficit is estimated to be Rs 52,524 crore (4.56% of GSDP).  It is higher than the limit of 4% of GSDP permitted by the central government in 2022-23 as per the Union Budget (of which, 0.5% of GSDP will be made available upon undertaking power sector reforms).  As per the revised estimates, in 2021-22, the fiscal deficit of the state is expected to be 4.18% of GSDP, which is lower than the budget estimate of 4.50% of GSDP.  It is within the 4.5% limit permitted by the central government for 2021-22 (of which, 0.5% of GSDP becomes available upon undertaking power sector reforms).  As per the FRBM statement presented along with the budget, the state’s fiscal deficit is expected to come down to 3% of GSDP in 2025-26.

Outstanding liabilities:   Outstanding liabilities is the accumulation of total borrowings at the end of a financial year, it also includes any liabilities on public account.  Outstanding liabilities are set to rise from 24.33% of GSDP in 2019-20 to 33.31% of GSDP in 2022-23.  

Figure  2 : Revenue and Fiscal Balance (% of GSDP)  Note: RE: Revised Estimates; BE: Budget Estimates.  A positive figure means a surplus, a negative figure means a deficit.  *Figures for 2023-24, 2024-25, and 2025-26 are projections. Sources: Madhya Pradesh Budget Documents 2022-23; PRS.

Figure  3 : Outstanding Liabilities (% of GSDP) Note: RE: Revised Estimates; BE: Budget Estimates. Sources: Madhya Pradesh Budget Documents 2022-23; PRS.

 

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 guarantee the borrowings of State Public Sector Enterprises (SPSEs) from financial institutions.  As of December 31, 2021, the total outstanding guarantees are Rs 34,992 crore.  Of this, Rs 27,040 crore is payable to food, civil supplies, and consumer protection department.