By Sumarbin Umdor
The Fourteenth Finance Commission (FCC) has recommended steep increase in vertical devolution of central taxes to states from the existing 32 percent to 42 percent to cover plan and non-plan expenditure and also provide adequate fiscal space to states to finance development activities as per their requirements. It has also awarded post devolution revenue deficit grants to eleven states including Meghalaya. However, it has not recommended sector specific grants such as support for general administration (police and judiciary), maintenance (buildings, roads, bridges and buildings) as it expects states to use the additional resources flow from enhanced tax devolution to meet these needs.
The recommendations of the FFC have created quite a stir in Meghalaya with opposition parties launching a scathing attack on the Congress government for gross financial mismanagement resulting in very meagre grants awarded to the State. While the Chief Minister has put up a brave face defending the government track record in fiscal management, the revenue deficit grant of Rs. 1770 crore must in no doubt cause a big disappointment and alarm to the State government.
In its submission to the FFC, the State government had projected a pre-devolution revenue deficit (own revenue receipts minus revenue expenditure) at about Rs. 52,000 crore for the award period of 2015-20. However, the Commission has assessed pre-devolution revenue deficit at only Rs. 27,000 crore which is a little over half the amount sought by the State government. According to assessment by the Commission, the State would require Rs. 1,770 crore to cover post devolution revenue deficit in the first four years of the award period and that by 2019-20 the revenue account would show a surplus eliminating the need grant.
So how will the recommendations of the FFC affect a resource poor state like Meghalaya? First of all the state is set to get a higher share of the divisible pool of central taxes at 0.642 percent which is 0.2 percent gain as compared to award by the Thirteenth Finance Commission. Based on central and state revenue receipts projected by the FFC for 2015-20, Meghalaya’s share in central taxes would come to about Rs. 25,000 crore with another Rs. 14,000 crore coming from own revenue receipts.
Unlike the preceding Commission that had awarded grants to the ADCs, the FFC has not recommended any award to the three councils under local government grants as these areas do not have elected village level local governments. Further, the State has not been awarded any sector specific grant barring central grant towards the State Disaster Response Fund. Thus, the total award recommended to Meghalaya which include tax devolution and grants-in-aid stand at about Rs. 27,000 crore for the period 2015-20.
Even with this enhanced transfer from Union government and its own revenue receipts, the State would still need additional Rs. 24,000 crore to meet its projected revenue expenditure outlay of Rs. 65,000 crore. The government would therefore have to severely curtail and slash down its projected plan and non-plan revenue expenditure to adjust to the expected fund flow in the next five years. This will in turn affect allocation for maintenance of roads and bridges, creation of new posts and infrastructure in new districts, grants to educational institutions, and support for ongoing state development projects.
Following the award of higher transfer to states, the Union government has announced stopping of its support to eight Centrally Sponsored Schemes (CSSs) which include the Rashtriya Krishi Vikas Yojana (RKVY), Border Region Grants Fund (BRGF), National e-Governance Plan, National Mission Food Processing Plan, Modernisation of Police Forces. Under these schemes, Meghalaya received from the Union government about Rs. 63 crore in 2012-13 which it will now have to fund from its own resources. Additionally, the State will also have to increase its contribution in as many as 24 CSSs as the Union government has announced changes in sharing pattern with higher contribution from states.
Another issue that may adversely affect the finances of the State is changes in the allocation of Normal Central Assistance (NCA) as per the Gadgil-Mukherjee formula which favours special category states. One of the members of the FFC has raised his concern about the possibility that the 10 percent hike in share of central assistance may lead to cut in NCA and other plan schemes. Unfortunately, this has already started with the withdrawal of schemes such as BRGF and RKVY which form part of central block grants to states. The replacement of Planning Commission with NITI Aayog has added to the uncertainty with the possibility that the new institutional arrangement may not be as accommodating towards resource poor states like Meghalaya.
The revenue deficit grant recommended for Meghalaya, which is a very small amount compared to awards for other states in the region, is based on Commission’s assessment of robust growth in own revenue collection in the next five years. However, the NGT ban on coal mining is having a detrimental effect on the state’s economy and is adversely affecting both own tax and non-tax receipts. Another looming event that will put a severe strain on the State government finances is the implementation of the seventh central pay commission in 2016-17 which will lead to demand for similar hikes in state government salaries.
These fiscal challenges that the state faces require an attitudinal change in our approach towards public fund which at present is treated like holy water with everyone helping himself to it. We have overplayed our situation of being a small and resource poor state while engaging in profligate public spending with no accountability. We can no longer continue to turn a blind eye to the profligacy in the use of public resources and the leakage of public revenue that is making few people rich but the state a pauper.