Fiscal Performance of Haryana:-A Critical Study

Sushil Kumar
Research Scholar
Department of Economics
Jamia Millia Islamia(A Central University)
New Delhi

Abstract
The present study has been carried out to analysis of fiscal performance of Haryana in the light of
fiscal objectives of economic growth and equal distribution of resources. The study covers period
from 1990-91 to 2009-10. Ordinary Least Square Technique, Tax buoyancy, Depression rate,
Percentage and ratio analysis has been used to analyze the data. For trend analysis, compound annual
growth rate has been used. The major findings are the growth rate of Haryanas GSDP, over the last
one and half decade has been very impressive. The average growth rate of GSDP (at current price) of
Haryana since 1993-94 has been 12.7 percent per annum; similarly the growth rate of GSDP (at 199900 prices) between 1999-00 and 2009-10 has been 8.1 percent. Total expenditure of the state has
increased at a trend growth rate of 12.73 percent per annum. Growth rate has been higher during the
first period. The state excise tax recorded an exceptionally high buoyancy rate at 1.32. However, the
sales tax/VAT has relatively modest value of buoyancy at 1.10. The state government has been
spending lot money on creating canals. In fact, the decision to start a new canals project is taken on
political consideration without looking into the technical, legal and economic cost benefit analysis.
For example the water sharing dispute with Punjab has not allowed the state to utilize the SYL canal
and Hansi-Bhtana link channel. However, overall subsidy in irrigation is well above 90 percent of
total cost. This is not sustainable and needs immediate corrective policy measures.
Keywords: - GSDP, Expenditure, Buoyancy, Estimated Subsidies, depreciation rate
JEL Code: C13, H70, H71, H72

Introduction:Haryana emerged as a separate state on November 1, 1966. Since its formation, it has made a
remarkable progress in different sectors of economy. Haryana economy experienced
accelerated economic growth and steadily rising per capita income, as compared to growth
experience of the Indian economy in general and other states in particular during the early
phase of green revolution. Economic progress based on green revolution technology had
accelerated the growth rate of the state economy (Economic Survey 2009-10). The
introduction of mechanized agriculture, use of High Yield Variety (HYV) seeds, chemical
fertilizers and better input of water, in the form of irrigation helped the state in becoming one
of the developed states of India. Haryana has carved a place of distinction for itself during the
past four decades. In all the sectors, whether it is agriculture, industry and service sector,
Haryana has marched towards modernity with leaps and bounds. The composition of Gross
State Domestic Product (GSDP) reveals that the share of primary sector is continuously
1

declining whereas the share of secondary as well as tertiary sector is continuously increasing
(Economic Survey of Haryana, 2010). It shows that the state economy is shifting from
agriculture to manufacturing and service sectors, which is a sign of healthy economy and the
state economy is moving in the right direction. The state economy has been witnessing a
growth of more than 9 per cent during the last three years.
The government took corrective actions to strengthen the economy. It followed the
policy of rationalization in 2000-01 which helped in controlling the salary and pension
expenditure. It implemented VAT in April 2003 and was the first state in India to do so. The
Haryana Fiscal Responsibility and Budget Management (FRBM) act has been enacted in
2005 as per the recommendations of Twelfth Finance Commissions 1. The corrective actions
have resulted in improvement in state financial position. With increase in state own resources
and better management of expenditure, the revenue account turned into surplus. With this
back drop, the present study of fiscal performance of Haryana has been taken.
Section: - 1
1.1 Review of Literature:
Sawhney (2003) the study focused on fiscal performance of Punjab. Punjab shows large
revenue and fiscal deficit year after year indicating continued macro fiscal imbalances of the
state. Increasing dependence on the RBI and the continuous application of borrowed funds
largely on current consumption and debt servicing indicates unsustainability and reflects
vulnerability of the state finances. An increase in the ratio of fiscal liabilities to GSDP
together with a large revenue deficit indicates that the state is gradually getting into a debt
trap. Thus the state needs to generate more revenue out of its existing assets. Only through
reducing revenue/fiscal deficit by compressing non-developmental expenditure in a mediumterm framework, prudential debt management, and transparency in fiscal operations, can long
term fiscal stability be achieved.
Verma (1995) budgetary policy of Indian States analyzed the budgets of Uttar Pardesh
Government and suggested that the U.P. Government must cut their coat according to cloth.
The state has to take vigorous steps towards resource mobilization for carrying out
development programs under five year plans. The inadequacy of the state revenue should be
made up by levying new suitable taxes by tightening the administration of the existing taxes
and by tapping new non-tax sources of state revenue such as industrial and commercial
enterprises.
Gulati et al (2003) another way to measure the gap between O&M requirements and
expenditures is to compare actual expenditures with gross agricultural income. The Irrigation
2

Commission of India in its report in 1992 estimated that water charges should be
approximately 5 percent for food crops and 12 percent for commercial crops and actual
amounts collected between less than one percent to 2.9 percent of gross farm income.
Sharma (2005) Gujarat Finances Reform of Budgetary Management Write in his study that
the analysis of Gujarat Finance has clearly shown both the sources of inefficiencies as well as
the area for policy reforms. The study has also suggested both the direction and strategy for
fiscal reforms that would enhance effectiveness of the budgetary policy. It is only with such
fiscal reforms that the state will be better positioned to sustain higher industrial growth and
meet the challenges of faster urbanization.
Singh (2001) deteriorating State of finances in Uttar Pradesh, examines the level of pattern
of expenditure and revenue of U.P. and its implications on the development efforts of the
states.

The study revealed that there was a perceptible decline in the development

expenditure. An increase in non-development expenditure was due to the steep rise in

interest burden and expenditure on administrative services in the state. The per capita state
tax revenue in Uttar Pradesh State is also the lowest among all the major states. Apart from
tax revenue, non-tax revenue in the state is also the lowest among all states.
Sarkar (1989) financing Human Development in Indian States estimated the trend rate of
growth of government expenditure on social service, on education and health in 15 Major
Indian States. The analysis indicates a deceleration in social sector expenditure in 13 states,
including those with low levels of human development, since the mid 1980s with in social
services, the education sector was relatively protected with only six state recording a
deceleration, while the health sector, 14 out of 15 states registered a declaration with 9 states
recording negative growth rates.
Sudhakar (2000) cost Recovery of Budgetary Service (A Study of Andhra Paradesh) reveals
that revenue deficit is increasing in the State. It is observed from the study that average CRR
of general services, economic services and social services combined has declined from
14.22% in 1990-91 to 12.12 in 1998-99 in AP and from 13.01% to 11.91% in all states
combined during the same period.
Kurian (2003) state Government Finances attempts to bring out the deteriorating trend in
state finances. Failure to contain wasteful expenditure and reluctance to raise additional
resources on the part of the states are the main causes. Tax war among the state governments
to attract private investments in the wake of economic reforms as well as competitive
populism on the part of ruling parties and contenders for power led to this. Almost all the
indicators of fiscal health of the state economies are steadily deteriorating. The study reaches
3

the conclusion that unless the drastic measures to correct the situation are resorted to without
delay, finances of several states will collapse.
Kavita Rao (2001) State Fiscal Studies Haryana, from 1985-86 to 1996-97 assess that the
long term growth of real GSDP in the state has been quite impressive, at around 6% per
annum during the period 1981 to 1996, but during 1990-96 there was a deceleration in the
growth just above 4%, mainly due to sharp fall in the growth rate of manufacturing sector.
Interest payments have risen as a share of state income revenue, while capital investment by
the state has declined sharply. Annual fiscal deficit 3.5 % of GSDP was lower in Haryana as
compared to India average fiscal deficit. Recurrent expenditure has risen faster than revenue
receipt

of

the

state

during

this

period.

Bishnoi (2005) fiscal management in Haryana: A Review the study revealed that the state of
Haryana, an old success

story of the green revolution in the country, continues to be

relatively high per capita income State. The fiscal position of Haryana has sound. But after
the onset of the policy of liberalization by the government of India (GOI) in 1991-92 the
economic performance of The State has slowed down in comparison to the national growth
rate. The fiscal indicators also started showing sign of deterioration. He reveals that the
revenue receipt of the state could not keep pace with expenditure requirements and led to the
decline in the fiscal health of the state, however the fiscal position has been improving.
Section:-2
2.1 Research Methodology:
The present study has been carried out to analysis of fiscal perforance of Haryana in the light
of fiscal objectives of economic growth and equal distribution of resources. To achieve the
objective study focuses on following sub-objectives.
1. To Analysis Gross Domestic Product of Haryana.
2. To study the total expenditure of Haryana from 1990-91 to -2009-10.
3. To Analysis the total irrigation subsidies of Haryana
The study is based on secondary data, which includes a study of State budgets, statistical
Abstract of Haryana for different years, monthly bulletin of R.B.I., Currency and finance
report of R.B.I. and other authentic source of informations.
The study covers 20 years period from 1990-91to 2009-10. Ordinary Least Square Technique,
Tax buoyancy, Depression rate, Percentage and ratio analysis has been used to analyze the
data. For trend analysis, compound annual growth rate has been used.
Section:-3
3.1 Gross Domestic Product of Haryana:
4

The growth rate of Haryanas GSDP, over the last one and half decade has been very
impressive. The average growth rate of GSDP (at current price) of Haryana since 1993-94 has
been 12.7 percent per annum; similarly the growth rate of GSDP (at 1999-00 prices) between
1999-00 and 2009-10 has been 8.1 percent. The growth rate in GSDP of Haryana is amongst
the best growth rate of GSDP in States in the country. Table 3.1 presents the GSDP growth
rate attained by Haryana.

Table: 3.1 Haryana- Gross State Domestic Product

Year

At Current Prices

1993-94 Prices
(constant)

Rs. Crores
1999-2000 Prices
(constant)

1993-94

22131

22131

--

1994-95

26245

23692

--

1995-96

29789

24276

--

1996-97

35642

27095

--

1997-98

38649

27483

--

1998-99

43646

29011

--

1999-00

50787

31230

50787

2000-01

56955

33367

54338

2001-02

63489

351.8

58016

2002-03

69653

36939

61022

2003-04

78816

40131

66176

2004-05

89431

43502

71880

2005-06

100676

NA

77666

2006-07

130033

2007-08

153087

2008-09

180494

NA

95283

NA

104189
112543

2009-10 (AE.)
212910
Sourse: Economic survey of Haryana various year
AE = Advanced Estimate
Average growth rate Nominal GDSP =13.5 percent

123512

Average growth rate Constant GDSP (at 1999-00 prices) = 9.2 percent

3.2 Total expenditure of Haryana

Total expenditure comprises revenue expenditure and capital expenditure of the state
government. During the study period total expenditure of the state has increased from Rs.
2322.61 Crore to Rs. 8132.45 Crore in the first decade and further to Rs. 31277.00 Crore. in
the second decade. It has increased at a compound annual growth rate of 12.73 percent.
Growth rate is higher during first decade. It has registered an overall increasing trend except
in few

years. Growth is exceptionally high in 1994-95. It was due to above average

expenditure on irrigation and energy. Huge money was spent on maintenance of these sectors
as prelude to approach the word Bank for financial assistance for these services. Significant

decline is in 1995-96 which is due to decrease in revenue expenditure on these services and
decline in expenditure on miscellaneous general service. Ratio of total expenditure to GSDP
has been in the range of 13.34 percent to 25.97 percent.
Table 3.2
Composition and Trend of Total Expenditure
Year

Revenue
Capital Expenditure Total Expenditure TE/GSDP TE/RR
Expenditure
(%)
(%)
Rs. Crore. % to TE Rs. Crore % to TE
Rs.
Growth
Crore. Rate (%)
1990-91
1933.07
83.23
389.54
16.77 2322.61
17.03 121.39
1991-92
2274.02
85.91
373.02
14.09 2647.05
13.97
16.20 118.08
1992-93
2379.34
83.41
473.35
16.59 2852.69
7.77
16.45 119.98
1993-94
3401.00
85.17
592.28
14.83 3993.28
39.98
18.04 114.70
1994-95
6272.92
92.03
543.35
7.97 6816.27
70.69
25.97 115.88
1995-96
5361.56
88.92
667.94
11.08 6029.50
-11.54
20.24 120.24
1996-97
6767.00
88.94
841.26
11.06 7608.26
26.18
21.35 125.79
1997-98
6617.17
87.67
930.50
12.33 7547.67
-0.80
19.53 127.97
1998-99
7018.89
84.85 1253.55
15.15 8272.44
9.60
18.95 150.99
1999-00
6952.05
85.49 1180.40
14.51 8132.45
-1.69
15.82 141.02
2000-01
7181.37
80.61 1727.23
19.39 8908.60
9.54
15.31 135.51
2001-02
8656.50
83.04 1768.30
16.96 10424.80
17.02
15.93 137.16
2002-03
9342.12
91.28
892.24
8.72 10234.36
-1.83
14.12 118.22
2003-04
10117.19
78.23 2814.97
21.77 12932.16
26.36
15.60 131.38
2004-05
11407.10
91.17 1104.99
8.83 12512.09
-3.25
13.34 112.23
2005-06
12639.90
87.60 1788.98
12.40 14428.87
15.32
13.52 104.15
2006-07
16362.15
86.23 2612.32
13.77 18974.47
31.50
14.59 105.69
2007-08
17526.87
82.52 3711.67
17.48 21238.55
11.93
13.87 107.53
2008-09 (R.E.)
21715.19
83.94 4155.63
16.06 25870.82
21.81
14.33 118.83
2009-10(B.E.)
25821.06
82.56 5455.94
17.44 31277.00
20.90
14.69 139.40
CAGR 1990-00
17.37
15.03
17.02
CAGR 2001-10
14.71
15.46
14.69
CAGR 1990-10
12.59
13.52
12.73

Per Capita TE
Rs.
1410.76
1565.88
1646.76
2249.23
3745.51
3231.85
3977.24
3847.22
4110.63
3916.74
4213.18
4814.70
4640.38
5750.18
5458.19
6178.20
7978.17
8772.27
10500.80
12611.69
14.09
12.62
10.25

Growth
Rate (%)
11.00
5.17
36.58
66.52
-13.71
23.06
-3.27
6.85
-4.72
7.57
14.28
-3.62
23.92
-5.08
13.19
29.13
9.95
19.70
20.10

Sourses: Statistical Abstract of Haryana Various Years

Note:-TE = Total Expenditure,GSDP = Gross State Domestic Product, RR = Revenuve Recepits, RE =
Revised Estimate, BE = Budget Estimate, CAGR = Compound Annual Growth Rate.

Ratio was higher in the first decade and has registered a declining trend in the recent years.
Gap of total expenditure and revenue receipts has widened in the latter half of nineties. From
2004-05 situation has improved to some extent but in 2008-09 again, there is about 19
percent short fall in revenue receipts which has increased to nearly 40 percent in 2009-10.
These two years have witnessed higher growth of expenditure than revenue receipts. Haryana
government has launched in 2009-10 budget, an economic stimulus package of Rs 1500 crore
to be spent in two years in a focused manner by undertaking specific projects in the
infrastructure sector. Per capita expenditure has also increased from Rs. 1410.76 in 1990-91
to Rs. 12611.69 in 2009-10. Growth rate of per capita expenditure is less than the growth rate
of total expenditure. It indicates lower growth of expenditure than population.
Revenue expenditure has been the major component of total expenditure. It is more
than 80 percent in all the years except in 2003-04. In many years, it has been above 85
percent and also above 90 percent in few years, leaving a little amount for development
activities. Capital expenditure has been in the range of 7.97 percent to 21.77 percent. Growth
6

of both the expenditures has been higher during first decade. It is pertinent to mention here
the when there has been a decline in total expenditure, burden has been born more by capital
expenditure.
3.3 Buoyancy:
For the estimated buoyancy the mathematical form of the regression used in the study is of
double log linear form, i.e.
Log(Y) = a + b Log(X) +
Where, b is interpreted as buoyancy, is an error term.
Table 3.3
(Haryanas estimated buoyancy (1980-81/2009-10)
Items

Buoyancy

State Excise

1.34

LADT

1.33

Taxes on Goods & Passengers

1.18

Own Tax Revenue

1.07

Sales Tax/VAT

1.10

Taxes on Vehicles

1.09

Stamps & Reg.

1.06

Other taxes & Duties

1.04

Electricity Duty

1.01

Land Revenue

0.96

Sources: Statistical Abstract of Haryana various years and Buoyancy calculated by Author

The time period between 1980-81 and 2009-10 is used for calculation. The buoyancy in own
tax revenue receipts are estimated to be 1.07. It implies that for every one percent increase in
real GSDP, the own tax revenue increases by 1.07 percent. Individual item wise buoyancy
figures indicate that except land revenue the value of buoyancy is greater than 1. The state
excise tax recorded an exceptionally high buoyancy rate at 1.34. However, the sales tax/Vat
has relatively modest value of buoyancy at 1.10.
3.4 Irrigation Subsidies:Estimation methodology is based on Srivastava and Sen, et. al. (1997) and Srivastava and
Amar Nath (2001)2. The main steps are described below
Costs
In terms of symbols, these costs may be written as
C = RX + (i + d*) K0 +iZ0
Here,
RX = Revenue expenditure,
i = Effective interest rate,
7

d* = Depreciation rate,
K0 = Aggregate capital expenditure at the beginning of the period pertaining to the budgetary
head.
Zo = sum of loans and equity investment at the beginning of the period
In the study we have not taken the sum of loans and equity investment at the beginning of the
period pertaining to the budgetary head because there is no provision of equity in the
irrigation investment
Receipts
Aggregate receipts may be written as:
R = RR + (I + D)
Here,
RR = Revenue Receipts from irrigation
I = Interest receipts
D = Dividends
In the study we have not taken the interest receipts, dividends because there is no provision in
the irrigation revenue.
Subsidy is defined as:
S = C - R,
Here:
S = calculated subsidy.
C = Aggregate cost
R = Aggregate Revenue receipts
Depreciation rate
The depreciation rate is to be calculated with reference to the stock of capital at the beginning
of the year. This stock of capital is the sum of nominal investments in previous years. Since
these are additions of nominal figures, all at different prices, the calculation of depreciation
rate has to take this into account. The methodology used for this purpose is explained below
{1 + w + w2 +.........+ w50}
D* = 1/50. ------------------------------. (1 + p)
{1 + x + x2 +..........+ x50}
Here
D* = Depreciation rate
w = (1+p)/ (1+z)
x = 1/ (1+z)

In the study the average life of a capital asset is taken 50 years (based on Srivastava and Sen,
et. al. (1997). The value of w = (1+p)/ (1+z), here p is the long term inflation rate and z is
the growth rate of nominal investment.
Table 3.4
(Estimated Irrigation Subsidies in Haryana)
Assumptions: Depreciation Rate: 5.70 percent
Effective Interest rate: 10 percent
(Values in Rs. Crore at 1999-00 price)

1987-88

Revenue
realization
of irrigation
21.33

276.56

161.38

Aggregate
capital
expenditure
2949.70

1988-89

39.10

311.88

155.39

2946.02

462.53

774.40

735.30

1989-90

31.47

355.63

142.69

2929.84

459.99

815.61

784.14

1990-91

36.28

335.36

172.75

2944.60

462.30

797.67

761.39

1991-92

29.13

359.93

185.50

2971.31

466.60

826.43

797.30

1992-93

30.37

377.14

166.19

2977.27

467.43

844.57

814.21

1993-94

31.38

368.55

170.34

2987.06

468.97

837.52

806.14

1994-95

26.86

753.75

123.19

2949.17

463.02

1216.77

1189.9

1995-96

26.95

380.16

168.46

2958.59

464.50

844.66

817.71

1996-97

29.00

364.16

248.05

3047.10

478.39

842.55

813.56

1997-98

31.25

354.17

296.04

3178.82

499.08

853.25

822.00

1998-99

63.36

337.49

314.68

3322.08

521.57

859.05

795.69

1999-00

38.30

334.84

313.28

3456.21

542.63

877.47

839.17

2000-01

52.45

345.89

311.49

3581.33

562.27

908.16

855.71

2001-02

64.17

436.36

332.22

3720.42

584.11

1020.47

956.30

2002-03

46.93

464.47

205.77

3725.56

584.91

1049.38

1002.45

2003-04

158.96

399.23

194.72

3719.37

583.94

983.17

824.21

2004-05

85.99

401.46

218.51

3737.31

586.76

988.21

902.22

Total

15235.73

Year

Revenue
Expenditure

Capital
expenditure

( i+ d)k, k=
is capital
expenditure
463.10

Aggregate cost=
Revenue exp.+
(i+d)k
739.67

Subsidy=(Aggregate
costs- Aggregate
revenue)

718.33

Sourse: Haryana Irrigation Department and Authors calculation

Table shows that the total irrigation subsidies year wise. During the year 1987-88 total
subsidies given to the irrigation Rs. 718.33 crores at constant prices for estimation of subsidy
we have taken revenue from irrigation, Revenue expenditure, Aggregate capital expenditure,
Effective interest rate, Depreciation rate. According to our calculation total subsidy during the
year 1987-88 was near about Rs 718.33 crore it was increasing year to year but in the year
1994-95 it was touched the peak point it was Rs1189.crore. During the year 1998-99 it was
declined after that it was increased. Total subsidy during the study period it was Rs 15235.73
crores.
Section:-4
Conculsions and policy recommendations:-

The growth rate of Haryanas GSDP, over the last one and half decade has been very
impressive. The average growth rate of GSDP (at current price) of Haryana since 1993-94 has
been 12.7 percent per annum; similarly the growth rate of GSDP (at 1999-00 prices) between
1999-00 and 2009-10 has been 8.1 percent.Total expenditure of the state has increased at a
trend growth rate of 12.73 percent per annum. Growth rate has been higher during the first
period. 80 to 90 percent expenditure is in revenue account, thus less than 20 percent in capital
account. The state excise tax recorded an exceptionally high buoyancy rate at 1.32. However,
the sales tax/Vat has relatively modest value of buoyancy at 1.10.
The state government has been spending lot money on creating canals. in fact, the decision to
start a new canals project is taken on political consideration without looking into the
technical, legal and economic cost benefit analysis. For example the water sharing dispute
with punlab has not allowed the state to utilize the SYL canal and Hansi-Bhtana link channel.
However, overall subsidy in irrigation is well above 90 percent of total cost. this is not
sustainable and needs immediate corrective policy measures.
Notes:
1. Report of 12th Finance Commission.
2. Budgetary Subsidies in India Subsidising Social and Economic Services 2001.
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Pradesh and Punjab. Washington, DC. International Food Policy Research Institute.
http://www pdf.usaid.gov/pdf_docs/PNADK228.pdf.

Srivastava, D.K.., & C. Bhujanga Rao (2001) Subsidies: Issues and Approach presented in
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