Daijiworld Media Network - Mumbai

Mumbai, Aug 17: Maharashtra's public debt has surged to Rs 9.37 lakh crore, placing the state second in absolute terms after Tamil Nadu and raising concerns over the growing pressure on its finances, particularly as revenue expenditure continues to crowd out capital spending.

While the state's debt-to-GSDP ratio of around 18.3-18.4 per cent remains well below the 25 per cent ceiling prescribed under the Fiscal Responsibility and Budget Management (FRBM) framework, the state's fiscal space is tightening, with the revenue deficit estimated at Rs 40,000-45,000 crore annually.

The bigger concern, economists say, is how the borrowed money is being utilised.

Healthy fiscal management generally involves borrowing to finance infrastructure and other productive assets capable of generating long-term economic returns. However, Maharashtra's structural revenue deficit means an increasing share of fresh market borrowings is being used to meet operational expenditure and welfare commitments rather than asset-creating capital projects.

Committed expenditure on salaries, pensions and interest payments accounts for more than 55-60 per cent of the state's revenue receipts. The annual interest burden alone is estimated at over Rs 64,000 crore.

Against this backdrop, the state's net capital outlay remains around Rs 97,000 crore to Rs 1.2 lakh crore, putting pressure on spending on infrastructure projects such as irrigation systems, industrial corridors and freight connectivity.

Economists warn that this could create a vicious cycle. Delays or reductions in infrastructure investment could weaken the environment for private investment, while continued borrowing to meet recurring expenditure could further restrict the state's fiscal flexibility.

Government sources also pointed to increasing reliance on off-budget borrowings through public entities such as MMRDA, MSRDC and MSEDCL. While such borrowings do not appear directly on the state's main balance sheet, they do not eliminate the underlying fiscal risks, sources said.

The fiscal pressure also poses a challenge to Maharashtra's ambition of becoming a $1 trillion economy by 2030. Economists estimate that achieving the target would require sustained nominal growth of more than 13-14 per cent annually.

If public capital expenditure remains constrained, private investment could be reluctant to bridge infrastructure gaps in areas such as last-mile road connectivity, power distribution and port linkages.

Flagship cash-transfer and subsidy schemes also add to the pressure by creating recurring expenditure commitments that can be difficult to reduce. Economists noted that servicing the state's massive debt reduces the funds available for investments in hospitals, schools, technology parks and other productive infrastructure.

Another potential risk comes from guarantees extended to state-owned corporations. These guarantees, estimated at more than Rs 1.2 lakh crore, could put additional pressure on the state budget if the concerned entities face difficulties in meeting their obligations.

Finance Department experts have suggested several measures to improve the state's fiscal position.

One option is monetising land banks located around major transport corridors, including the Samruddhi Mahamarg, Metro hubs and existing brownfield infrastructure, to generate additional non-tax revenue.

The government could also move large capital-intensive projects such as ports, expressways and industrial hubs towards Public-Private Partnership (PPP) models, with state resources focused primarily on viability gap funding.

Administrative and pension reforms could further help contain recurring expenditure. These could include greater adoption of contributory pension structures, rationalisation of redundant government departments and wider use of digital governance to reduce administrative costs.

According to sources, the state is also expected to focus on strengthening its Own Tax Revenue (SOTR) by improving GST compliance, revising land registration values and rationalising levies on non-essential services.

The government may also review open-ended subsidies by introducing income-based eligibility caps and strengthening direct benefit transfer (DBT) mechanisms to plug leakages and ensure that welfare spending reaches intended beneficiaries.

The key challenge for Maharashtra will therefore be to balance welfare commitments and debt servicing with the capital investment required to sustain high economic growth and achieve its ambitious $1 trillion economy target.