Increased Welfare Spending in Maharashtra to Reduce Capital Expenditure in FY25

The Eknath Shinde-led Maharashtra government has announced increased welfare spending ahead of the elections, which is expected to push the fiscal deficit beyond the target. According to a report by India Ratings and Research on Monday, the fiscal deficit for FY25 is projected to be 3 per cent, surpassing the budget target of 2.5 per cent. The state will likely resort to higher borrowings to bridge this gap.

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The government presented its final budget for FY25 amounting to Rs 6.12 lakh crore on June 28. Additionally, supplementary demands of Rs 94,889 crore were tabled on July 10, primarily aimed at social welfare schemes. These supplementary demands include Rs 25,000 crore for the Mukhyamantri Majhi Ladki Bahin Yojana, Rs 6,056 crore for skill development, Rs 4,317 crore towards social justice, and Rs 4,185 crore on public health.

Fiscal Deficit and Borrowings

The revenue deficit is anticipated to be 1.3 per cent against the budget target of 0.5 per cent. The fiscal deficit is expected to hover around 3 per cent in FY25 with an assumed nominal GSDP growth of 9.5 per cent. To finance this deficit, the state plans to avail fresh market borrowings worth Rs 75,917 crore, which would cover 68.8 per cent of its budgeted fiscal deficit for FY25.

There could also be a reduction in capital expenditure (capex) in FY25 compared to the budget estimates to accommodate revenue expenditure while keeping the fiscal deficit in check. The rating agency highlighted that this compression in capex might be necessary to manage the increased welfare spending.

Supplementary Demands Breakdown

The supplementary demands presented by the government include significant allocations towards various social welfare initiatives. Specifically, Rs 25,000 crore is earmarked for the Mukhyamantri Majhi Ladki Bahin Yojana, which aims at empowering women and girls in the state. Additionally, Rs 6,056 crore is allocated for skill development programs designed to enhance employability among the youth.

Further allocations include Rs 4,317 crore towards social justice initiatives aimed at promoting equality and inclusivity within society. Public health also sees a substantial allocation of Rs 4,185 crore to improve healthcare services and infrastructure across Maharashtra.

The report underscores that these increased expenditures are likely to strain the state's finances and necessitate higher borrowings. This move comes as part of the government's efforts to address social welfare needs ahead of upcoming elections.

In summary, Maharashtra's fiscal strategy involves balancing increased welfare spending with higher borrowings and potential reductions in capital expenditure. This approach aims to meet immediate social welfare demands while managing long-term fiscal stability.