It’s not exactly breaking news but a closer look at how various Indian states are managing their budgets is insightful.

IndiaSpend’s Dhritiman Gupta finds that many Indian states spend more than what they earn, hence consistently running deficits on the revenue account, which then have to be financed by loans.

The states can be broadly classed in 3 categories.

The first category contains states which have stayed well within their means over the period. The list includes states like Bihar, Uttar Pradesh, Andhra Pradesh, Chattisgarh and Karnataka. Jharkhand had a healthy balance of Rs 2,610 crore in 2009-10 but slipped in 2010-11, registering deficits to the tune of Rs 140 crore. It is however is expected to be back on track in 2011-12.

The second category includes states which are overspending, but are expected to correct that in 2011-12. The states included are Gujarat, Rajasthan, Tamil Nadu and Maharashtra.

The third category is made up of states which are chronic over spenders. They include Haryana, Punjab, Kerala and West Bengal. West Bengal had revenue deficits as high as Rs 21,580 crore in 2009-10. The revenue deficits of Kerala and Punjab instead of declining were expected to go up by Rs 1,790 crore and Rs 170 crore respectively in 2011-12.

Let’s look at the Revenue Deficit (+)/ Surplus (-) for Non-special category states. They are ranked from best to worst on basis of budget estimates of 2011-12 in the RBI Report on State Budgets.

Revenue Deficit/Surplus Of Non-special Category States

State Rank2009-10 (in Rs cr)2010-11(RE) (in Rs cr)2011-12(BE) (in Rs cr)
1. Bihar-2,940-2,400-6,270
2. Uttar Pradesh-7,050-1,460-5,640
3. Madhya Pradesh-5,500-4,730-3,870
4. Andhra Pradesh-1,230-540-3,830
5. Jharkhand-2,610140-3,710
6. Chattisgarh-890-1,080-1,350
7. Karnataka-1,620-1,600-1,280
8. Gujarat6,9705,560-440
9. Rajasthan4,750890-350
10.Tamil Nadu3,5303,130-170
11. Maharashtra8,0105,690-60
12. Orissa-1,140320-60
13. Goa130-330170
14. Haryana4,2604,4602,660
15. Punjab5,2503,7103,880
16. Kerala5,0203,7405,530
17. West Bengal21,58017,1708,290

Source: RBI report on State Budgets 2011-12

A large portion of the revenue expenditure goes into payments of salaries, pensions and servicing debt. Let’s take a closer look at the top 2 category 3 states namely, Kerala and West Bengal, to see how much they have been spending on these heads.

Expenditure On Salaries

HeadsWest BengalKerala
1. Revenue Receipts(RR) (in Rs crore)36,92150,11665,84726,10932,12739,427
2. Revenue Expenditure(RE) (in Rs crore)58,49967,28274,13831,13235,86344,961
a) Interest Payments(IP) (in Rs crore)14,03715,50316,0235,5685,7936,572
b) Salaries(SA) (in Rs crore)21,32024,23026,8809,93011,46016,480
c) Pensions(PN) (in Rs crore)6,5107,7536,8794,7055,7887,312
3. IP/RR (%)383124211817
4. SA/RR (%)584841383641
5. PN/RR (%)171510181819
IP+SA+PN/RR (%)1139475777277
6. IP/RE (%)242322181615
7. SA/RE(%)363636323237
8. PN/RE(%)11119151616
IP+SA+PN/RE (%)717067656468

Source: RBI report on State Budgets 2011-12

Expenditure More Than Income

As can be seen from the table for both West Bengal and Kerala, a large portion of revenue receipts are spent on paying salaries, pensions and servicing debt.

In 2009-10, West Bengal spent more on these heads than it earned in revenues. Even though the situation improved in 2010-11, West Bengal was still paying 94% of its receipts on salaries, pensions and interest payments.

Kerala has consistently spent more than 70% of its receipts on these heads. In 2009-10 it spent 77% of its revenues on salary, pensions and interest payments. The figure reduced to 72% in 2010-11 but is expected to go back up to 77% according to 2011-12 budget estimates.

Kerala interestingly has consistently paid 18% of its revenues as pensions, highest in the country. This maybe on account of the fact that till recently the retirement age of Kerala state government employees was 55, way below the national age of 62. It has been raised to 56 last month.

Biggest Expenditure: Salaries

Salary payments account for a lion’s share of state revenue for both the states. The figures hover around 36% for West Bengal and 32% for Kerala. However, according to budget estimates 2011-12, the figure is expected to go up to 37% for Kerala.

West Bengal, with outstanding debts of more than 2 lakh crore is expected to be one of the highest interest payers in the country. It does not disappoint. West Bengal has been consistently paying more than 20% of its revenues receipts to service its massive debt. Kerala is also not far behind, paying an average of 17% of its revenues as interests over 2009-11.

If we change focus on how much of the total revenue expenditures are accounted for by these heads over 2009-11, we find for West Bengal the figure hovers around 70%, thus leaving only 30% for development of the state. For Kerala the corresponding figure is 65% but expected to go up to 68% in 2011-12.