Thursday, February 25, 2021

State Budget

All eyes are on Chief Minister Neiphiu Rio, who also holds the Finance portfolio, on the Budget for the year 2021-22 he will present on February 18. The coming budget makes it special primarily because of the financial difficulties the state is going through. The budget is expected to indicate the strategic intent or the long term direction the government will assume for the times to come. It is a matter of fact that our state’s exchequer is currently suffering from a variety of ailments that are all long-term and structural in nature. The never ending dependency on central grants for financing our budget is only increasing every passing year (Nagaland gets 90% of its Total Revenue Receipts from Union transfers, which is highest across all States).The bloated and unmanageable salary and pension bill is making sure that the government compromises on the vital capital expenditure decisions. Poor allocation towards capital expenditure deprives the economy from creating enough assets which may form the base for improved productivity, improvement in states own tax revenues and providing impetus to GSDP growth. In fact the Fifteenth Finance Commission has urged Nagaland to restructure and rationalize its expenditure priorities. While committed expenditure (including grant-in-aid salary) of Nagaland was 67.3% of its Total Revenue Expenditure (TRE) in 2018-19 (all states average 50.6%), on the other hand, capital expenditure in Nagaland declined between 2011-12 and 2018-19 both as a percentage of GSDP (from 10.3% to 5.9%) and total expenditure (20.4% to 12.8%). The FC had suggested the state to take measures to reduce burden of committed expenditure to free up resources for development expenditure. It had also recommended reducing infrastructure deficit by increasing capital expenditure and finding alternate sources of funding like PPP. Given this backdrop, the Chief Minister will find himself on a sticky wicket with a bunch of unique challenges. As per the XV-FC Report, Nagaland has the second highest debt in the country. Though the state’s debt/GSDP has reduced from 55.5% in 2011-12 to 42.7 in 2018-19, it is still much higher than the Northeast and Himalayan states average of 29.61%. The way the State has been very grossly financing its liability gaps has created a never ending debt whirlpool. The borrowing route has been repeatedly abused for meeting the revenue expenditure (paying salaries & pensions) and sometimes for repaying past liability of interest; rather than creating tax returning assets. All the regimes till date have chosen to borrow irrationally and pass on the debt to the next government. The result is a huge pile of public debt hanging like a naked sword on every state subject. At the same time, with an underdeveloped private sector majority of people here rely heavily on government jobs. On one side the recurring burden of salaries and pension bill on the expenditure side has always been a reason for Finance Department’s sleepless nights. And on the other side our state has one of the worst unemployment rates. This bloated bureaucracy has reached to a super saturated state. Any attempt to recruit more workforces will only worsen the state’s debt profile. Not surprisingly our state has one of the biggest public servants-to-population ratios in India. There is also the case of non-performing public sector undertakings (PSUs). Non performing PSUs owe crores to the state exchequer as successive governments could not initiate remedial measures in the once-flourishing PSUs in the state. The number of accounts in arrears of non-performing PSUs in the state has increased from 18 in 2013-14 to 21 in 2017-18, according to the XV-FC Report. Nagaland Industrial Development Corporation, Nagaland State Mineral Development Corporation, and Nagaland Industrial Raw Materials & Supply Corporation Ltd., Dimapur finalized six accounts as of September 20, 2018, while the remaining PSUs (two) did not finalize any accounts. The delay in finalization of accounts of these PSUs was mainly due to delay in compilation/adoption of accounts by the Board of Directors of respective PSUs. In addition to above, the accounts of one non-working PSU had arrears of accounts for 16 years (2002-2018), said the Report. The irony is that the state has to keep a provision for all these PSUs every financial year. It’s like feeding a dead cow – you only spoil the valuable hay without getting a drop of milk.