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Economic
Development Policy |
| STATE
FINANCES |
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OUTLINE
OF THE POLICY ON STATE FINANCES
The
Policy on State Finances of Madhya Pradesh seeks to foster economic
development by connecting Government to fiscal prudence and reform. The
main thrusts of this policy, envisaged to tackle the problem of fiscal
and revenue deficits, are directed towards increase in revenue
mobilisation efforts and austerity in non-developmental expenditure. The
measures include:
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Fiscal
reform (resource management) programme
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Tax
reforms like VAT
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Increase
in non tax revenues through revision of fees and user charges for
various services
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Controlling
the growth of administrative / non-plan expenditure, consolidation of
subsidies, etc.
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Programmes
for down-sizing of government
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Public
enterprises reforms
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Core
Investment Programme for capital expenditure on developmental works like
physical infrastructure
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FISCAL REFORM PROGRAMME
The
Government of Madhya Pradesh has undertaken a Fiscal Reform Programme
which is basically contained in the agreement with the Asian Development
Bank (ADB) and Memorandum of Understanding (MOU) with the Government of
India (GOI). Recently, GOI has formulated a State Fiscal Reform Facility
(SFRF) based on the Eleventh Finance Commission’s (EFC) report. The
SFRF stipulates inter alia certain fiscal reform and a steady
improvement has been achieved so far.
The
targets for 2001-02 require significant reduction in revenue
expenditure, increase in capital expenditure through budgetary as well
as
extra-budgetary
or institutional funding. Priority
would have to be given to capital expenditure to stimulate state
economic growth. While this will keep the fiscal deficit high, it could
be tolerated within limits in the interest of infrastructure
development.
The
state would also formulate a long-term policy on contingent liabilities
for selective use of State
Government guarantees as a leveraging instrument for raising resources.
TAX REFORMS
The
government has introduced measures like preparation for the
implementation of VAT, increase of user charges in irrigation, reduction
of subsidies in power for agricultural consumers, reforms in property
tax, stamp duty and motor vehicle tax etc. in order to improve the
revenue situation. It is
imperative that all departments meet or exceed the revenue targets
included in Budget Estimates & Additional Resource Mobilisation.
Sales
tax is the major revenue generator, accounting for about 45% of the
states tax revenues. Annually, it grew at the rate of 13.26 and had a
buoyancy of 1.2 for the period 1993-94 to 1998-99. The State is already
on the reforms path and is preparing to introduce Value Added Tax by
April 2002. Madhya Pradesh may have to accept multi-rate VAT in order to
be in line with the national consensus. It will be necessary to have a
revenue neutral rate of VAT.
State
Excise is the second most important state tax with a growth rate of
around 14% and buoyancy around 1.2 for the period 1993-94 to 98-99. The
rates of excise duty are periodically reviewed on a continuing basis to
make them comparable with the neighbouring states.
Collections
from Stamp Duty and Registration are growing at the rate of 16% with
buoyancy of 1.4%. The state government has recently lowered the rates
and has established a state level administrative structure through
Central and subordinate Valuation Cells. Increased compliance is
anticipated through the reduction of rates leading to widening of the
tax base. The potential revenue losses from reduction of rates is
expected to be offset by improved tax administration through the
valuation cells.
Professional
Tax contributes nearly Rs. 110 Cr. annually to the state treasury.
Though legally everyone engaged in any profession, trade or employment
is liable to pay this tax, in practice, it is collected only from
employees in the formal and organised sector via Tax Deducted at Source
(TDS). A system of collection of this tax through banks may be
progressively adopted to ensure better compliance by self-employed
professionals as well.
In
addition to the above, the State Government will pursue the following
initiatives with the Government of India.
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GOI
should be persuaded to increase the ceiling on profession tax to Rs.
5000 as recommended by the Planning Commission’s Advisory Group.
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States
should be allowed to tax inter-state services, also recommended by
Advisory Group.
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States
should be allowed to tax goods presently subjected to Additional Excise
Duty.
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Multi-point
taxation of “declared goods” should be permitted.
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For
a quantum jump in mining revenue, it is imperative to revise the royalty
on coal. GOI should be persuaded to revise the royalty and fix it on
“ad-valorem” basis. This can yield potential increase in revenue by
about Rs. 380 crores per annum.
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Non Tax Revenue
The
non-tax revenues of Madhya Pradesh have grown at a rate of 4.89% per
annum, with a buoyancy of 0.5. Economic services like forests,
irrigation, and industries comprise almost 80% of the non-tax revenues.
The share of forest revenues has reduced from about 44% of the total
non-tax revenues at the beginning of the decade to about 30% in the end,
while the share of industries has consistently been over 40% in the last
few years.
User
charges have been revised / reformed by the state in the case of Medical
Education, Technical Education, Hospitals, Irrigation and Transport.
Similarly, revision and new sources of revenue generation would be
considered in other cases, for example:
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The
possibility of revising fees in non-professional colleges would be
examined as these have not changed for several years. The Prime
Minister’s Economic Advisory Council has also recommended such
revision. There is also need to rationalise the number of colleges in an
area to optimise resources.
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Present
land prices in industrial estates / areas are very low, e.g. Rs. 2.50
per sq.ft. for SSI and Rs. 6 per sft for LMI. The transfer fee is also
very low. These would need to be revised with appreciation in value of
developed land.
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The
possibility of introducing user participation in maintenance of estates
would also be explored.
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Some
of the erstwhile industrial areas are now within city limits with high
real estate value. The possibility of reclaiming such sites from units
that are closed or have diverted the land and re-developing these as
commercial sites may be examined.
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There
are several other areas where user charges need to be revised. With a
view to provide incentive to departments, they can be allowed to retain
the revenue from revised user charges and these can be utilised for
specified purposes. The departments can be allowed to open PD accounts
in the District Treasuries into which the revenue can be deposited and
utilised at local level. This arrangement can be introduced, for
example, in case of;
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PSC
examination fee
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Jails
– Sale of manufactured goods and proceeds from dead stock, waste
paper, etc. |
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Receipt
from guest houses, Government hostels etc.
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Receipt
from stadiums, national parks / sanctuaries
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Receipt
from fish farms, poultry farms, etc.
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Though
the central environmental policies have largely restricted their
commercial exploitation, forests continue to be a major revenue source
for Madhya Pradesh. The state would attempt to arrest the declining
share, as pointed out earlier, and step up efforts for maximisation of
revenues as far as possible within the given regulations.
While
attempting to increase receipts through revision of rates, the state
would critically examine the backlog of unrealised revenues. Efforts
would be stepped up to realise these dues so as to arrest further
deterioration of the deficit situation.
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