Maharashtra & Gujarat turn 50

As they celebrate the 50th year of formation, Maharashtra and Gujarat, the two leading states, are seen floundering on the financial front. Though both have maintained a steady growth rate, their recent financial adventures may pull down the growth trajectory. After a bloody feud over Mumbai, the earlier central province was bifurcated into two states, Maharashtra and Gujarat, on May 1, 1960. Since they were formed, both states have contributed substantially to the national economy. While Maharashtra contributed 13.3% to the country’s GDP in 2007-08, Gujarat’s share was 6.8%. Together, the contribution of these two states was more than 19% which makes them significantly important. In terms of GSDP growth rate, both the states had robust growths. For the period FY00-FY07, Gujarat had the fastest CAGR (compounded annual growth rate) at 13.6%. Maharashtra was not too far behind at third place with a CAGR GSDP growth of 11.3% during the period. Both states incidentally have recorded robust growth in secondary and tertiary sectors. In Gujarat, the share of primary, secondary and tertiary sectors has been reported as 17.76%, 41.05% and 41.19%, respectively in 2008-09 while for Maharashtra, the state income composition was 11.7%, 29.2% and 59.1%, respectively for the same period. In terms of per capita income, both the states have recorded far better performance than the national average. In Gujarat, the per capita income stands close to Rs 50,000 when Maharashtra is ahead by a few thousands. The state’s per capita income is close to Rs 57,000. Of late, both states have been vying for a bigger pie of industrial investment. Gujarat has recorded 27% industrialisation, whereas Maharashtra — which is much bigger in size — is ahead with 37.78%. As regards to literacy rate, Maharashtra ranked second after Kerala. Gujarat was placed at No. 5. Again, they fared much better than the national average. Both the states are also highly urbanised, better than the national average. Gujarat has 37.36% of its population living in cities whereas in Maharashtra the number is 42.41%. This at a time when the national average is 27.81%. Both states share a coastline. But when it comes to making the best of it, Gujarat has piped Maharashtra. Gujarat’s share of total cargo handled by ports was about 27% and that of Maharashtra was about 14%. Positives, however, end here. Financial fortunes of these states of late have been found taking a negative turn. With a significant chunk of the total revenue receipts going towards non-plan expenditure, the financial flexibility of both states has been restricted. For Maharashtra, with a servicing debt that’s a kissing distance away from Rs 2,00,000 crore, it takes away half of its revenue. In 2001, Gujarat’s debt was Rs 14,000 crore which went to Rs 1,05,000 crore in 2009. The state’s outgo in servicing this debts is over Rs 8,000 crore which is more than onefourth of its annual budget. After showing a significant improvement in FY08 with a revenue surplus position, Maharashtra finances witnessed a significant deterioration in FY09. Delays in debt servicing on state government-guaranteed debt in the past led to a creation of a sinking fund. However, unlike Gujarat, it has not set up a guarantee redemption fund.