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No, Gujarat isn’t the financially best run state in India

India-states-finances-deficit
Reuters/Vivek Prakash
Money management.
By Madhura Karnik
Published Last updated This article is more than 2 years old.

On top of the list of India’s financially best managed states is an unlikely winner—Chhattisgarh, an underdeveloped but resource-rich state that has outperformed some of the country’s most industrialised provinces.

“The relatively new and small mineral-rich state in the eastern part of the country—Chhattisgarh—stands out as the financially most well-managed state in India, because of a revenue surplus budget and low interest payment burden,” said a research report by securities firm, Nomura, which analysed budgets of 18 states in India.

“Among the larger states, Gujarat tops the list owing to higher capital expenditure spending and greater reliance on self-generating taxes,” it added.

Nomura has ranked the states on five financial parameters—fiscal deficit or surplus, revenue deficit or surplus, share of own taxes in revenue, share of capital expenditure in total expenses, and interest payment as a share of expenditure—to calculate a “Z-score.” Here are the rankings:

An important factor in determining the financial health of states is the interest on their borrowings. For instance, West Bengal and Punjab spend 19.6% and 17.2% of their overall expenditure on interest payments, respectively. This is above the state average of 9.5%, according to Nomura. High interest costs inflate expenses for these states, thus resulting in a deficit.

In terms of interest payment as a proportion of the state gross domestic product, apart from Chhattisgarh, Goa, Odisha and Telangana have the least interest costs.

Meanwhile, Nomura’s analysis also found that western states were less reliant on central government taxes—than those in the east—as a source of revenue, and generated more income on their own. Eastern states also spent more on capital expenditure. That is probably because many of these states are still developing.

The chart below shows the revenue deficit or surplus as a proportion of the gross state domestic product, and what part of the total expenditure is formed by interest payment. A negative deficit in the chart means the state has surplus revenues.

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