Uttarakhand Budget Analysis 2021-22

Former Chief Minister of Uttarakhand, Mr. Trivendra Singh Rawat, presented the Budget for the state for the financial year 2021-22 on March 4, 2021.  Note that due to 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 Uttarakhand for 2021-22 (at current prices) is projected to be Rs 2,78,006 crore.  This is an annual increase of 5% over 2019-20, and 14.4% higher than the revised estimate of GSDP for 2020-21 (Rs 2,43,012 crore).   In 2020-21, GSDP is estimated to be 17.2% lower than the budget estimate.  In comparison, the nominal GDP of India is estimated to contract by 13% in 2020-21, and grow by 14.4% in 2021-22.
   
• Total expenditure for 2021-22 is estimated to be Rs 57,400 crore, a 10% annual increase over the actual expenditure in 2019-20.
   
• Total receipts (excluding borrowings) for 2021-22 are estimated to be Rs 44,174 crore, an annual increase of 20% over 2019-20.  In 2020-21, total receipts (excluding borrowings) are estimated to fall short of the budget estimate by Rs 5,428 crore (decrease of 13%). 
   
• Revenue surplus for 2021-22 is estimated to be Rs 115 crore, which is 0.04% of the GSDP.   In 2020-21, as per the revised figures, revenue deficit is estimated at Rs 3,080 crore (1.27% of GSDP) though the budget for 2020-21 had estimated a revenue surplus of Rs 50 crore (0.02% of GSDP).   
   
• Fiscal deficit for 2021-22 is targeted at Rs 8,985 crore (3.23% of GSDP).  In 2020-21, the revised estimate for fiscal deficit is expected to be 4.45% of GSDP, higher than the budget estimate of 2.57% of GSDP.

Policy Highlights

• Horticulture: Schemes such as the National Horticulture Mission, Mission for Integrated Development of Horticulture, Mission Apple and the Horticulture Insurance Scheme will be implemented.  To increase cultivation to 20,000 apples per year, an integrated chain for processing and marketing will be established. 
   
• Water management: The Song Drinking Water project will be launched this year.  Rs 150 crore has been allocated towards the project this year.   The project seeks to provide access to 15 crore litres of water per day for 50 years in Dehradun and surrounding areas.   
   
• Reverse migration: The Rural Development and Migration Commission will be established to curb reverse migration from the state. 

Uttarakhand’s EconomyGSDP:  The growth rate of Uttarakhand’s GSDP (at constant prices) was 4.3% in 2019-20, which is less than the growth rate in 2018-19 (5.8%).  Sectors:     In 2019-20, agriculture, manufacturing, and services sectors contributed to 9%, 52%, and 39% of the economy.   In 2019-20, the growth of manufacturing and services sectors declined as compared to 2018-19.  Per capita GSDP:  The per capita GSDP of Uttarakhand in 2019-20 (at constant prices) was Rs 1,78,050, 3.1% higher than in 2018-19.  Unemployment:  According to the Periodic Labour Force Survey 2018-19, Uttarakhand has an unemployment rate of 8.9%, which is higher than the all-India unemployment rate of 5.8%.

Figure 1: Growth in GSDP and sectors in Uttarakhand 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: MOSPI; PRS.

Budget Estimates for 2021-22

• Total expenditure in 2021-22 is targeted at Rs 57,400 crore.  This is an annual increase of 10% over 2019-20.  This expenditure is proposed to be met through receipts (other than borrowings) of Rs 44,174 crore and borrowings of Rs 12,850 crore.  Total receipts for 2021-22 (other than borrowings) are expected to register an annual increase of 20% over 2019-20.
   
• As per the revised estimates for 2020-21, total expenditure is estimated to decrease by 4% over the budget estimates.  In 2020-21, receipts (other than borrowings) are estimated to reduce by 13% from budget to revised stage.  Borrowings in 2020-21 are estimated to increase by 38% from the budget to revised stage.
   
• The state expects a revenue surplus of Rs 115 crore in 2021-22 (0.04% of GSDP).  In 2020-21, revenue deficit is estimated to be Rs 3,080 crore at the revised stage as compared to the revenue surplus of Rs 50 crore estimated in the budget.  Fiscal deficit for 2021-22 is estimated to be Rs 8,985 crore (3.23% of GSDP).  In 2020-21, fiscal deficit is estimated to increase to 4.45% of GSDP at the revised stage as compared to 2.57% of GSDP estimated at the budget stage.    

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

Note: BE is Budget Estimates; RE is Revised Estimates. For revenue balance, positive values indicate surplus and negative values indicate deficit.

Sources: Uttarakhand Budget Documents 2021-22; PRS.

Expenditure in 2021-22

• Capital expenditure for 2021-22 is proposed to be Rs 13,364 crore, which is an annual decrease of 4% 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 44,036 crore, which is an annual increase of 16% over 2019-20.  This expenditure includes the payment of salaries, pensions, and interest.  In 2020-21, revenue expenditure is estimated to be 5% less than the budget estimate.
   
• In 2021-22, expenditure on debt servicing is estimated to be Rs 10,294 crore, which is an annual decrease of 13% over 2019-20.  In 2020-21, revised estimate for debt servicing is 4.5% lower than budget estimate.

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

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

Sources: Uttarakhand Budget Documents 2021-22; PRS. 

Sectoral expenditure in 2021-22

The sectors listed below account for 61% of the total expenditure on all sectors by the state in 2021-22.  A comparison of Uttarakhand’s expenditure on the key sectors with other states can be found in Annexure 1.  

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

Sources: Annual Finance Statement 2021-22, Uttarakhand Budget Documents; 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, Uttarakhand is estimated to spend Rs 28,875 crore on committed expenditure, which is 65% of its revenue receipts.  This is an annual increase of 12% over 2019-20.  This comprises spending on salaries (37% of revenue receipts), pension (14% of revenue receipts), and interest payments (14% of revenue receipts).  In 2020-21, allocation towards salaries and interest payments decreased by 6% and 7% from the budget to the revised stage.

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

Sources: Uttarakhand Budget Documents 2021-22; PRS.
 Receipts in 2021-22

• Total revenue receipts for 2021-22 are estimated to be Rs 44,151 crore, an annual increase of 20% over 2019-20.  Of this, Rs 16,048 crore (36%) will be raised by the state through its own resources, and Rs 28,103 crore (64%) will come from the centre.  Resources from the centre will be in the form of state’s share in central taxes (17% of revenue receipts) and grants (47% of revenue receipts).
   
• Devolution:  In 2021-22, receipts from the state’s share in central taxes (devolution) are estimated to register an annual increase of 4% over 2019-20.   However, as per the revised estimates of 2020-21, devolution receipts are estimated to decrease by 30% as compared to the budget stage.  This is due to a 30% cut in the union budget for devolution to states, from Rs 7,84,181 crore at the budgeted stage to Rs 5,49,959 crore at the revised stage.
   
• State’s own tax revenue:  Total own tax revenue of Uttarakhand is estimated to be Rs 12,754 crore in 2021-22, an annual increase of 5% over the actual tax revenue in 2019-20.  In 2020-21, as per the revised estimates, state’s own tax revenue is estimated to be 22% lower than the budget estimates.  

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

Note: *State’s Own Tax and Grants from Centre figures have been adjusted to account for GST compensation grants as Grants from Centre. 

Sources: Uttarakhand Budget Documents 2021-22; PRS.

In 2021-22, SGST is estimated to be Rs 4,671 crore, which is the largest source (37%) of the state’s own tax revenue.  This is an annual decrease of 3% over the actual SGST revenue in 2019-20.   In 2020-21, SGST is estimated to be 33% less than the budget estimate.   

In 2021-22, Uttarakhand is expected to generate Rs 3,202 crore through the collection of State Excise, an annual increase of 8% over 2019-20.  In 2020-21, the State Excise collection is estimated to decrease by 21% over the budget estimates.

In 2021-22, Rs 2,004 crore is estimated to be generated through Sales Tax and VAT, an annual increase of 5% over 2019-20.

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

Sources: Uttarakhand Budget Documents 2021-22; PRS.

Deficits, Debt, and FRBM Targets for 2021-22

The Uttarakhand 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 surplus: It is the excess of revenue receipts over revenue expenditure, and implies that the government does not need to borrow to finance revenue expenditure (which do not increase its assets or reduces its liabilities).  The 2021-22 budget estimates a revenue surplus of Rs 115 crore (0.04% of GSDP) in 2021-22.  The 15^th Finance Commission has recommended post-devolution revenue deficit grants of Rs 28,147 crore for it in 2021-26.

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 8,985 crore (3.23% of GSDP).  This is higher than the 3% limit as per the FRBM Act.   As per the revised estimates, in 2020-21, the fiscal deficit of the state is expected to be 4.45% of GSDP, which is higher than the budget estimate of 2.57%.  

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.  Please note that the fiscal deficit of Uttarakhand in the revised estimates for 2020-21 was 4.45% 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, Uttarakhand is eligible to borrow Rs 982 crore for implementing reforms in ease of doing business and reforms in power distribution. 

Outstanding liabilities:  Outstanding liabilities refers to the accumulation of total borrowings (including any liabilities under public accounts) at the end of a financial year. In 2021-22, the outstanding liabilities are expected to be 30.8% of the GSDP, higher than the revised estimate for 2020-21 (30.2% of GSDP).  The outstanding liabilities are estimated to increase from 23.6% in 2018-19 to 30.8% in 2021-22.

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

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: Uttarakhand Budget Documents 2021-22; PRS.

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

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

Annexure 1:  Comparison of states’ expenditure on key sectors

The graphs below compare Uttarakhand’s expenditure on six key sectors as a proportion of its total expenditure on all sectors.   The average for a sector indicates the average expenditure in that sector by 30 states (including Uttarakhand) as per their budget estimates of 2020-21.[1]

• Education:  Uttarakhand has allocated 18.4% of its total expenditure for education in 2021-22.   This is higher than the average allocation (15.8%) for education by all states (2020-21 BE).

• Health:  Uttarakhand has allocated 6.5% of its total expenditure on health, which is higher than the average allocation for health by states (5.5%).
   
• Agriculture:  Uttarakhand has allocated 6.7% of its total expenditure towards agriculture and allied activities.  This is marginally higher than the average allocation for agriculture by states (6.3%).
   
• Rural development:  Uttarakhand has allocated 6.5% of its expenditure on rural development.   This is marginally higher than the average allocation for rural development by states (6.1%).
   
• Police:  Uttarakhand has allocated 4.2% of its total expenditure on police, which is marginally lower than the average expenditure on police by states (4.3%).
   
• Roads and bridges:  Uttarakhand has allocated 3.6% of its total expenditure on roads and bridges, which is lower the average allocation by states (4.3%).

Note: 2019-20, 2020-21 (BE), 2020-21 (RE), and 2021-22 (BE) figures are for Uttarakhand.

Sources: Uttarakhand Budget Documents 2021-22; various state budgets; PRS.

Annexure 2:  Recommendations of the 15^th Finance Commission for 2021-26

The 15^th Finance Commission’s (FC) report for the 2021-26 period was released on February 1, 2021.  For the 2021-26 period, the Commission has recommended the share of states in the divisible pool of central taxes to be 41%, same as that for 2020-21 (also recommended by the 15^th FC in its report for 2020-21).  This is 1% point lower than the 42% share recommended by the 14^th FC (for the 2015-20 period) to separately provide funds for the newly formed union territories of Jammu and Kashmir, and Ladakh.  The 15th FC proposed revised criteria for determining the share of individual states (different from 14^th FC).  Based on the 15^th FC’s recommendations for the period 2021-26, Uttarakhand will have a 0.46% share in the divisible pool of central taxes.   This implies that out of every Rs 100 of revenue in the divisible pool during the 2021-26 period, Uttarakhand will receive Rs 0.46.  This is 3.7% higher than Rs 0.45 recommended by the 14^th FC for the period 2015-20.

Table 8:  Share of states in the divisible pool of central taxes under the 14^th and 15^th FC periods 

Note: Although the 15^th Finance Commission recommended the same criteria for 2020-21 and 2021-26 periods, the reference period for computation on some underlying indicators are different. This is why the share in the divisible pool in 2020-21 and 2021-26 differ for states. State’s share has been rounded off to two decimal places.
Sources: Reports of 14^th and 15^th FCs; Union Budget Documents 2021-22; PRS.

Table 10: Taxes devolved to states as per Union Budget 2021-22

Note: Actuals for 2019-20 and Revised Estimates for 2020-21 have been reported in the Union Budget after adjusting for excess or less devolution in previous years.  
Sources: Union Budget Documents 2021-22; PRS.

Annexure 3:  Comparison of 2020-21 Revised and 2021-22 Budget Estimates

The following tables compare the budget estimates for 2021-22 with the revised estimates for 2020-21.

Table 11: Comparison of Budget Estimates for 2021-22 with Revised Estimates for 2020-21

Note:  For revenue balance, positive values indicate a surplus and negative values indicate a deficit.

Sources: Uttarakhand Budget Documents 2021-22; PRS.

Table 12: Key Components of State’s Own Tax Revenue 

Sources: Uttarakhand Budget Documents 2021-22; PRS.

Table 13: Allocation towards Key Sectors