Early this week, the Comptroller and Auditor General (CAG) of India tabled a report on the finances of Uttar Pradesh for the financial year 2020-21. A few days prior to that, on May 26, the budget for Uttar Pradesh for 2022-23 was presented, along with which the final audited expenditure and receipt figures for the year 2020-21 were released. The year 2020-21 presented a two-fold challenge for states – loss in revenue due to impact of COVID-19 pandemic and lockdown, and the need for increased expenditure to support affected persons and economic recovery. CAG noted that Uttar Pradesh’s GSDP grew by 1.05% in 2020-21 as compared to a growth of 6.5% in 2019-20. The state reported a revenue deficit of Rs 2,367 crore in 2020-21 after reporting revenue surplus for 14 successive years since 2006-07. Revenue deficit is the excess of revenue expenditure over revenue receipts. This blog looks at the key trends in the finances of Uttar Pradesh in 2020-21 and certain observations by CAG on fiscal management by the state.
Spending and Deficits in 2020-21
Underspending: In 2020-21, total spending by the state was 26% less than the budget estimate presented in February 2020. In sectors such as water supply and sanitation, the actual expenditure was 60% less than the amount budgeted, while in agriculture and allied activities only 53% of the budgeted amount was spent. CAG observed that in 251 schemes across 57 departments, the state government did not incur any expenditure in 2020-21. These schemes had a budget provision of at least one crore rupees, and had cumulative allocation of Rs 50,617 crore. These included schemes such as Pipe Drinking Water Scheme in Bundelkhand/Vindhya and apportionment of pension liabilities. Moreover, the overall savings due to non-utilisation of funds in 2020-21 was 27.28% of total budget provisions. CAG observed that the budgetary provisions increased between 2016 and 2021. However, the utilisation of budget provisions reduced between 2018-19 and 2020-21.
Pattern of spending: CAG observed that in case of 12 departments, more than 50% of the expenditure was incurred in March 2021, the last month of the financial year. In the civil aviation department, 89% of the total expenditure was incurred in March while this figure was 62% for the social welfare department (welfare of handicapped and backward classes). CAG noted that maintaining a steady pace of expenditure is a sound practice under public financial management. However, the Uttar Pradesh Budget Manual has no specific instructions for preventing such bunching of expenditure. The CAG recommended that the state government can consider issuing guidelines to control the rush of expenditure towards the closing months of the financial year.
Management of deficit and debt: As a measure to mitigate the impact of COVID-19, an Ordinance was promulgated in June 2020 to raise the fiscal deficit limit from 3% of GSDP to 5% of GSDP for the year 2020-21. Fiscal deficit represents the gap between expenditure and receipts in a year, and this gap is filled with borrowings. The Uttar Pradesh Fiscal Responsibility and Budget Management Act, 2004 (FRBM Act) passed by Uttar Pradesh Assembly specifies the upper limit for debt and deficits. The Ordinance thus permitted the state government to borrow more to sustain its budget expenditure. The fiscal deficit of the state in 2020-21 was 3.20% of GSDP, well below the revised limit. At the same time, the state’s outstanding debt to GSDP in 2020-21 was 32.77% of GSDP, above the target of 32% of GSDP set under the FRBM Act. Outstanding debt represents accumulation of debt over the years.
Table 1: Spending by Uttar Pradesh in 2020-21 as compared to Budget Estimates (in Rs crore)
|
Particular |
2020-21 BE |
2020-21 Actuals |
% change from BE to Actuals |
|
Net Receipts (1+2) |
4,24,767 |
2,97,311 |
-30% |
|
1. Revenue Receipts (a+b+c+d) |
4,22,567 |
2,96,176 |
-30% |
|
a. Own Tax Revenue |
1,58,413 |
1,19,897 |
-24% |
|
b. Own Non-Tax Revenue |
31,179 |
11,846 |
-62% |
|
c. Share in central taxes |
1,52,863 |
1,06,687 |
-30% |
|
d. Grants-in-aid from the Centre |
80,112 |
57,746 |
-28% |
|
Of which GST compensation grants |
7,608 |
9,381 |
23% |
|
2. Non-Debt Capital Receipts |
2,200 |
1,135 |
-48% |
|
3. Borrowings |
75,791 |
86,859 |
15% |
|
Of which GST compensation loan |
- |
6,007 |
- |
|
Net Expenditure (4+5+6) |
4,77,963 |
3,51,933 |
-26% |
|
4. Revenue Expenditure |
3,95,117 |
2,98,543 |
-24% |
|
5. Capital Outlay |
81,209 |
52,237 |
-36% |
|
6. Loans and Advances |
1,637 |
1,153 |
-30% |
|
7. Debt Repayment |
34,897 |
26,777 |
-23% |
|
Revenue Balance |
27,451 |
-2,367 |
-109% |
|
Revenue Balance (as % of GSDP) |
1.53% |
-0.14% |
|
|
Fiscal Deficit |
53,195 |
54,622 |
3% |
|
Fiscal Deficit (as % of GSDP) |
2.97% |
3.20% |
Note: A negative revenue balance indicates a deficit. The actual fiscal deficit reported by Uttar Pradesh for 2020-21 in 2022-23 budget was 2.8% of GSDP. This difference was due to higher GSDP figure reported by the state.
Sources: Uttar Pradesh Budget Documents of various years; CAG; PRS.
Finances of State Public Sector Undertakings
Public sector undertakings (PSUs) are set up by the government to discharge commercial activities in various sectors. As on March 31, 2021, there were 115 PSUs in Uttar Pradesh. CAG analysed the performance of 38 PSUs. Out of these 38 PSUs, 22 companies earned a profit of Rs 700 crore, while 16 companies posted a loss of Rs 7,411 crore in 2020-21. Note that both the number of PSUs incurring losses and the quantum of losses has decreased since 2018-19. In 2018-19, 20 PSUs had reported losses worth Rs 15,219 crore.
Figure 1: Cumulative losses incurred by Uttar Pradesh PSUs (Rs crore)
Sources: CAG; PRS.
Losses of power sector PSUs: Three power sector PSUs—Uttar Pradesh Power Corporation Limited, Purvanchal Vidyut Vitran Nigam Limited, and Paschimanchal Vidyut Vitran Nigam Limited—were the top loss incurring PSUs. These three PSUs accounted for 73% of the total losses of Rs 7,411 crore mentioned above. Note that as of June 2022, for each unit of power supplied, the revenue realised by UP power distribution companies (discoms) is 27 paise less than cost of supply. This is better than the gap of 34 paise per unit at the national level. However, the aggregate technical and commercial losses (AT&C) of the Uttar Pradesh discoms was 27.85%, considerably higher than the national average of 17.19%. AT&C losses refer to the proportion of power supplied by a discom for which it does not receive any payment.
Off-budget borrowings: CAG also observed that the Uttar Pradesh government resorted to off-budget borrowing through state owned PSUs/authorities. Off budget borrowings are not accounted in the debt of the state government and are on books of the respective PSUs/authorities, although, debt is serviced by the state government. As a result, the outstanding debt reported in the budget does not represent the actual debt position of the state. CAG identified off-budget borrowing worth Rs 1,637 crore. The CAG recommended that the state government should avoid extra-budget borrowings. It should also credit all the loans taken by PSUs/authorities on behalf of and serviced by the state government to state government accounts.
Management of Reserve Funds
The Reserve Bank of India manages two reserve funds on the behalf of state governments. These funds are created to meet the liabilities of state governments. These funds are: (i) Consolidated Sinking Fund (CSF), and (ii) Guarantee Redemption Fund (GRF). They are funded by the contributions made by the state governments. CSF is an amortisation fund which is utilised to meet the repayment obligations of the government. Amortisation refers to payment of debt through regular instalments. The interest accumulated in the fund is used for repayment of outstanding liabilities (which is the accumulation of total borrowings at the end of a financial year, including any liabilities on the public account).
In line with the recommendation of the 12th Finance Commission, Uttar Pradesh created its CSF in March 2020. The state government may transfer at least 0.5% of its outstanding liabilities at the end of the previous year to the CSF. CAG observed that in 2020-21, Uttar Pradesh appropriated only Rs 1,000 crore to the CSF against the requirement of Rs 2,454 crore. CAG recommended that the state government should ensure at least 0.5% of the outstanding liabilities are contributed towards the CSF every year.
GRF is constituted by states to meet obligations related to guarantees. The state government may extend guarantee on loans taken by its PSUs. Guarantees are contingent liabilities of the state government, as in case of default by the company, repayment burden will fall on the state government. GRF can be used to settle guarantees extended by the government with respect to borrowings of state PSUs and other bodies. The 12th Finance Commission had recommended that states should constitute GRF. It was to be funded through guarantees fees to meet any sudden discharge of obligated guarantees extended by the states. CAG noted that Uttar Pradesh government has not constituted GRF. Moreover, the state has also not fixed any limits for extending guarantees.
For an analysis of Uttar Pradesh’s 2022-23 budget, please see here.
Explainer: The Central Educational Institutions (Reservation in Teachers’ Cadre) Bill, 2019
The Central Educational Institutions (Reservation in Teachers’ Cadre) Bill, 2019 was passed by Parliament today. It replaces an Ordinance that was promulgated in February 2019. The Bill brings about two major changes in reservation of teaching posts in central educational institutions. Firstly, it establishes that for the purpose of reservation, a university/college would be considered as one single unit. This means that posts of the same level across all departments (such as assistant professor) in a university would be grouped together when calculating the total number of reserved seats. Secondly, it extends reservations beyond Scheduled Castes (SC) and Scheduled Tribes (ST), to include socially and educationally backward classes (OBC) and economically weaker sections (EWS).
In this post, we look at how the Bill will impact the reservation of teaching posts in central educational institutions.
How has teachers’ reservation been implemented in the past?
In 2006, the University Grants Commission (UGC) issued guidelines for teacher reservations in central educational institutions.[1] These guidelines required central educational institutions to consider a university as one unit for the purpose of reservation. It stated that reservations would be calculated using a roster system specified by the Ministry of Personnel, Public Grievances, and Pension.[2]
However, the UGC Guidelines (2006) were challenged in the Allahabad High Court in 2017. The question before the Court was whether a university should be taken as a unit when applying the roster.[3] The Court found that individual departments should be taken as a unit for the purpose of reservation, instead of universities. It held that taking a university as a unit could result in some departments having only reserved candidates and others having only unreserved candidates. Following the judgment, departments were treated as a single unit for reservation at central educational institutions.
In March 2019, the Central Educational Institutions (Reservation in Teachers’ Cadre) Ordinance, 2019 was promulgated, and passed as a Bill in July 2019. The Bill overturns the Allahabad High Court judgment and reverts to the system where a university is regarded as one unit for the purpose of reservation.
Over the years, there has been deliberation on whether the university or department should be taken as a unit for reservation of teaching posts. This has to do with the manner in which the roster system [4]specified by the Ministry of Personnel, Public Grievances, and Pension is applied in both situations.
What was the roster system specified by the Ministry of Personnel, Public Grievances, and Pension?
The roster system calculates reservation based on cadre strength. A cadre includes all posts available to be filled within a unit, i.e. either department or university. For instance, all associate professor positions within a university or within a department would be considered a cadre.
At present, the roster system is applied in two ways, i.e., the 13-point system or the 200-point system. For initial recruitment in both systems, all posts in a cadre are numbered and allocated. This means that in a cadre with 18 posts, each post will be assigned a number from 1 to 18 and allocated to a particular category, i.e., either SC, ST, OBC, EWS or unreserved. Therefore, hiring of teachers for all posts takes place on the basis of this list.
However, there are two fundamental differences between the 200 point and 13 point systems.
When a university is taken as the unit for reservation, the 200-point system is used, as there tend to be more than 13 posts in a university. However, when a department is taken as a unit, the 13-point system or the 200-point system may be used, depending on the size of the department.
How are the number of reserved seats calculated in the roster system?
For both the systems, the number of seats reserved for SC, ST, OBC, and EWS is determined by multiplying the cadre strength with the percentage of reservation prescribed by the Constitution. The percentage of reserved seats for each category is as follows: (i) 7.5% for ST, (ii) 15% for SC, (iii) 27% for OBC, and (iv) 10% for EWS.
If the number of posts needed to be filled is 200, and the percentage of reservation for ST is 7.5%, we would use the following formula to calculate the number of reserved posts for that class:
Number of posts needed to be filled x percentage of reservation/100
= 200 x 7.5/100
= 15
Thus, the number of seats reserved for ST in a cadre with the strength of 200 posts is 15. Using the same formula, the number of seats reserved for SC is 30, OBC is 54, and EWS is 20.
How are these reserved seats distributed across posts?
To determine the position of each reserved seat in the roster systems, 100 is divided by the percentage of the reservation for each category. For instance, the OBC quota is 27%. Therefore, 100/27 = 3.7, that is, approximately every 4th post in the cadre list. Likewise, SC is approximately every 7th post, ST is approximately every 14th post, and EWS will be approximately every 10th post.
What is the difference in the application of the roster between the department and university systems?
To demonstrate the difference between the department and university systems, a hypothetical example of a university with 200 posts for associate professors, and nine departments with varying number of posts is provided below.
When the university is taken as a unit
|
If the university is taken as the unit for reservation, then the total number of posts for the reserved categories would be 119 (i.e., 30 for SC, 15 for ST, 54 for OBC, and 20 for EWS), whereas the number of unreserved (UR) seats would be 81. This is mentioned in Table 1. The method of calculation of these numbers is based on the roster system prescribed by the Ministry of Personnel, Public Grievances, and Pension. |
Table 1: No. of posts reserved when university is taken as a unit
|
When departments are taken as separate units
|
If different departments of a university are taken as separate units for reservation, then the total number of posts for the reserved categories would be 101 (i.e., 25 for SC, 9 for ST, 49 for OBC, and 18 for EWS), whereas the number of unreserved (UR) seats would be 99. This is mentioned in Table 2. The method of calculation of these numbers is based on the roster system prescribed by the Explainer: The Central Educational Institutions (Reservation in Teachers’ Cadre) Bill, 2019 The Central Educational Institutions (Reservation in Teachers’ Cadre) Bill, 2019 was passed by Parliament today. It replaces an Ordinance that was promulgated in February 2019. The Bill brings about two major changes in reservation of teaching posts in central educational institutions. Firstly, it establishes that for the purpose of reservation, a university/college would be considered as one single unit. This means that posts of the same level across all departments (such as assistant professor) in a university would be grouped together when calculating the total number of reserved seats. Secondly, it extends reservations beyond Scheduled Castes (SC) and Scheduled Tribes (ST), to include socially and educationally backward classes (OBC) and economically weaker sections (EWS). In this post, we look at how the Bill will impact the reservation of teaching posts in central educational institutions. How has teachers’ reservation been implemented in the past? In 2006, the University Grants Commission (UGC) issued guidelines for teacher reservations in central educational institutions.[1] These guidelines required central educational institutions to consider a university as one unit for the purpose of reservation. It stated that reservations would be calculated using a roster system specified by the Ministry of Personnel, Public Grievances, and Pension.[2] However, the UGC Guidelines (2006) were challenged in the Allahabad High Court in 2017. The question before the Court was whether a university should be taken as a unit when applying the roster.[3] The Court found that individual departments should be taken as a unit for the purpose of reservation, instead of universities. It held that taking a university as a unit could result in some departments having only reserved candidates and others having only unreserved candidates. Following the judgment, departments were treated as a single unit for reservation at central educational institutions. In March 2019, the Central Educational Institutions (Reservation in Teachers’ Cadre) Ordinance, 2019 was promulgated, and passed as a Bill in July 2019. The Bill overturns the Allahabad High Court judgment and reverts to the system where a university is regarded as one unit for the purpose of reservation. Over the years, there has been deliberation on whether the university or department should be taken as a unit for reservation of teaching posts. This has to do with the manner in which the roster system [4]specified by the Ministry of Personnel, Public Grievances, and Pension is applied in both situations. What was the roster system specified by the Ministry of Personnel, Public Grievances, and Pension? The roster system calculates reservation based on cadre strength. A cadre includes all posts available to be filled within a unit, i.e. either department or university. For instance, all associate professor positions within a university or within a department would be considered a cadre. At present, the roster system is applied in two ways, i.e., the 13-point system or the 200-point system. For initial recruitment in both systems, all posts in a cadre are numbered and allocated. This means that in a cadre with 18 posts, each post will be assigned a number from 1 to 18 and allocated to a particular category, i.e., either SC, ST, OBC, EWS or unreserved. Therefore, hiring of teachers for all posts takes place on the basis of this list. However, there are two fundamental differences between the 200 point and 13 point systems.
When a university is taken as the unit for reservation, the 200-point system is used, as there tend to be more than 13 posts in a university. However, when a department is taken as a unit, the 13-point system or the 200-point system may be used, depending on the size of the department. How are the number of reserved seats calculated in the roster system? For both the systems, the number of seats reserved for SC, ST, OBC, and EWS is determined by multiplying the cadre strength with the percentage of reservation prescribed by the Constitution. The percentage of reserved seats for each category is as follows: (i) 7.5% for ST, (ii) 15% for SC, (iii) 27% for OBC, and (iv) 10% for EWS. If the number of posts needed to be filled is 200, and the percentage of reservation for ST is 7.5%, we would use the following formula to calculate the number of reserved posts for that class: Number of posts needed to be filled x percentage of reservation/100 = 200 x 7.5/100 = 15 Thus, the number of seats reserved for ST in a cadre with the strength of 200 posts is 15. Using the same formula, the number of seats reserved for SC is 30, OBC is 54, and EWS is 20. How are these reserved seats distributed across posts? To determine the position of each reserved seat in the roster systems, 100 is divided by the percentage of the reservation for each category. For instance, the OBC quota is 27%. Therefore, 100/27 = 3.7, that is, approximately every 4th post in the cadre list. Likewise, SC is approximately every 7th post, ST is approximately every 14th post, and EWS will be approximately every 10th post. What is the difference in the application of the roster between the department and university systems? To demonstrate the difference between the department and university systems, a hypothetical example of a university with 200 posts for associate professors, and nine departments with varying number of posts is provided below. When the university is taken as a unit
When departments are taken as separate units
As can be seen in the above example, if departments are taken as separate units, there is a decrease in the number of reserved posts. The number of reserved posts decreased by five for SC, six for ST, five for OBC, and two for EWS. This example is corroborated by the special leave petition filed by the Ministry of Human Resource Development in the Supreme Court against the 2017 order of Allahabad High Court. It demonstrates that the number of reserved seats in Banaras Hindu University (BHU) decreased when departments were taken as separate units. The number of reserved posts decreased by 170 for SC, 114 for ST, and 90 for OBC.[5] EWS was not included in the reservation system when the BHU numbers were calculated. Thus, the trade off between the two systems is as follows. On the one hand, when the university is taken as a unit there is a possibility that some departments would only have reserved candidates and others would have only unreserved candidates. However, when a department is taken as a unit, there is a decrease in the total number of reserved posts within the university.
[1] Circular No. F. 1-5/2006(SCT), University Grants Commission, 2006. [2] O.M. No. 36012/2/96-Esst. (Res), ‘Reservation Roster- Post based- Implementation of the Supreme Court Judgement in the case of R.K. Sabharwal Vs. State of Punjab, Department of Personnel and Training, Ministry of Personnel, Public Grievances, and Pension, July 1997, http://documents.doptcirculars.nic.in/D2/D02adm/36012_2_96_Estt(Res).pdf. [3] Vivekanand Tiwari v. Union of India, Writ petition no. 43260, Allahabad High Court, April 2017. [4] O.M. No.36039/1/2019-Estt (Res), ‘Reservation for Economically Weaker Sections (EWSs) in direct recruitment in civil posts and services in the Government of India’, Department of Personnel and Training, Ministry of Personnel, Public Grievances, and Pension, https://dopt.gov.in/sites/default/files/ewsf28fT.PDF. [5] Special Leave Petition filed in Supreme Court by Ministry of Human Resource Development, January 2019, as reported in Indian Express, https://indianexpress.com/article/explained/simply-put-the-unit-in-teachers-quota-5554261/. Ministry of Personnel, Public Grievances, and Pension. |
Table 2: No. of posts reserved when department is taken as the unit
Note: Number of posts in each department are hypothetical. |
As can be seen in the above example, if departments are taken as separate units, there is a decrease in the number of reserved posts. The number of reserved posts decreased by five for SC, six for ST, five for OBC, and two for EWS. This example is corroborated by the special leave petition filed by the Ministry of Human Resource Development in the Supreme Court against the 2017 order of Allahabad High Court. It demonstrates that the number of reserved seats in Banaras Hindu University (BHU) decreased when departments were taken as separate units. The number of reserved posts decreased by 170 for SC, 114 for ST, and 90 for OBC.[5] EWS was not included in the reservation system when the BHU numbers were calculated.
Thus, the trade off between the two systems is as follows. On the one hand, when the university is taken as a unit there is a possibility that some departments would only have reserved candidates and others would have only unreserved candidates. However, when a department is taken as a unit, there is a decrease in the total number of reserved posts within the university.
[1] Circular No. F. 1-5/2006(SCT), University Grants Commission, 2006.
[2] O.M. No. 36012/2/96-Esst. (Res), ‘Reservation Roster- Post based- Implementation of the Supreme Court Judgement in the case of R.K. Sabharwal Vs. State of Punjab, Department of Personnel and Training, Ministry of Personnel, Public Grievances, and Pension, July 1997, http://documents.doptcirculars.nic.in/D2/D02adm/36012_2_96_Estt(Res).pdf.
[3] Vivekanand Tiwari v. Union of India, Writ petition no. 43260, Allahabad High Court, April 2017.
[4] O.M. No.36039/1/2019-Estt (Res), ‘Reservation for Economically Weaker Sections (EWSs) in direct recruitment in civil posts and services in the Government of India’, Department of Personnel and Training, Ministry of Personnel, Public Grievances, and Pension, https://dopt.gov.in/sites/default/files/ewsf28fT.PDF.
[5] Special Leave Petition filed in Supreme Court by Ministry of Human Resource Development, January 2019, as reported in Indian Express, https://indianexpress.com/article/explained/simply-put-the-unit-in-teachers-quota-5554261/.
