Gujarat reduces debt under Modi

Guest Columnist C. Rajashekhar

C. Rajashekhar is the All India Convenor of the BJP’s Economic Cell

Digvijaya Singh is misinformed if he thinks convenient statistics critiquing the Gujarat Development Model will help.

ongress General Secretary Digvijaya Singh has said that Gujarat is awash in debt. Quoting Planning Commission figures, Singh claims that the Modi model of development has increased the debt burden of Gujarat and made it more debt-vulnerable than other states. As for the estimation of the state governments' debts is concerned, there are different approaches followed by state governments, the Reserve Bank of India, the Office of the Comptroller and Auditor General and the Finance Commissions. Clearly then the measurement of debt of states suffers from a lack of uniformity. By and large, the Reserve Bank of India's estimate of the public debt of states is regarded as comprehensive, objective and also useful for inter-state comparability of debt. Economists measure the debt burden of a state in terms of the debt-state GDP ratio as absolute numbers of debt would not be comparable across say small and large states. If one were to look at the RBI data, Gujarat has reduced its debt burden over time. As on March 2013, the stock of Gujarat's debt is 26.1% of the state's GDP; down from a whopping 38.5% in March 2001. In fact, the Narendra Modi government has been continuously reducing its debt burden every year since 2004. From 37.1% in 2004, the debt-state GDP ratio fell to 35.1% in 2005, 33.9% in 2006, 32.1% in 2007, 30.5% in 2008, 29.9% in 2009, 28.8% in 2010, 27.9% in 2011, 26.7% in 2012 and finally to 26.1% in March 2013. Moreover, the Gujarat government has also managed to rein in its debt burden in line with its own Fiscal Responsibility and Budget Management (FRBM) Act and the recommendations of the constitutionally created XIIIth Finance Commission (FC) that submitted its report in 2009. The state's amended FRBM law has capped the public debt so as not to exceed 27.1% of the state's GDP for each of the financial years 2011-12 to 2014-15; the actual percentages for the state during 2011-12 are 26.7 and for 26.1 for 2012-13. The state has also successfully met the targets laid down in the report of the XIIIth FC. The Commission stipulated that the state's debt-GDP ratio must not exceed 29.4% in 2010-11, 28.8% in 2011-12 and 28.1% in 2012-13. The state has met the Commission's advisory too; in 2010-11 the ratio was 27.9%, which fell to 26.7% in 2011-12 and again dipped down to 26.1% in 2012-13. The state is also relatively less debt stressed now than many other major states of the country. As in March 2013, Uttar Pradesh had the highest debt incidence with a debt-state GDP ratio of 37.2% followed by West Bengal (36.3%), Punjab (32%), Rajasthan (28.7%), Bihar (28.4%), Jharkhand (27.5%), Kerala (27%) and Madhya Pradesh (26.9%). Besides, debt per se is not wrong as no government can run without borrowings in a democracy. Even the Union government has a huge debt burden. However, what is important in economic terms is that the government must maintain inter-generational equity while employing its debt. That is, the present debt must not impose a burden on the state's future generations. If the debt is used for capital expenditure such as irrigation, water supply, roads and electricity, then the future generations would be left with increased wealth. While Gujarat used about 68% of its debt for capital expenditure in 2002, it has substantially increased its proportion of debt spent on investment expenditure to a mind boggling 106% in 2013. In other words, Gujarat now uses its entire borrowings for productive investment. C. Rajashekhar is the All India Convenor of the BJP's Economic Cell Source: http://www.sunday-guardian.com/analysis/gujarat-reduces-debt-under-modi#.UuVLxCAouu1.twitter