Hasmukh Adhia panel suggests Gujarat to redirect budget towards services


A panel set up to suggest how Gujarat could help India become a $5 trillion economy says the state budget should focus on services and increase spending on education, sports , art and culture.

The panel, chaired by former Indian finance secretary Hasmukh Adhia, said Gujarat has the resources to increase spending in these sectors as its budget deficit is better than other states.



The state is expected to go to the polls by the end of the year.

“Since the next source of growth would be services, more efforts would be needed to increase spending on services,” the panel said in a report submitted to the Gujarat government earlier this month.

The report wanted the state government to increase spending in services such as tourism, information technology (IT) and information technology enabled services (ITeS) and the financial services sector .

Currently, the state spends 0.4% of its total spending on tourism. However, the government also spends on various other things such as road construction, drinking water supply and sanitation, electricity, etc. which also contributes to the development of the tourism sector, but it does not is not specifically geared towards tourism, the report points out.

“…the actual magnitude of tourism expenditure would be more than 0.4% of total expenditure. However, the potential of tourism to drive economic growth in the coming years in Gujarat is immense and deserves additional government expenditure”, the panel said.

He cited the estimate of the National Council for Applied Economic Research in 2015-2016 that the tourism sector generates revenue for companies operating in sectors such as transport, hospitality, agriculture, industry , financial services, health, clothing, gems and jewelry, communication, trade and others.

The panel estimated that every 100 rupees spent in the tourism sector has an impact of 221 rupees on the whole economy. Its report indicates that IT/ITeS and the financial services sector are two other areas where the state can increase funding.

The development of the services sector would require not only a favorable policy environment and appropriate infrastructure, but also a skilled workforce. “Skills are a public good and government intervention is essential for effective provision of public goods, i.e. skilled labor to attract investors in various service sub-sectors.” says the report.

The panel also suggested that the state needs to increase spending on education, sports, arts, and culture because its per capita spending is low compared to other states. The State devotes 15 percent of its total expenditure to these heads.

The task force observed that Gujarat has sufficient fiscal space to increase public spending in the start-up sectors. He said Gujarat has followed a very conservative path. Compared to the limit of 3% of GDPP, the budget deficit remained below 2%. On the other hand, Haryana, Karnataka and Tamil Nadu have used available additional resource envelopes to direct resources to key sectors.

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