By Phrangsngi Pyrtuh
The NDA government promised increasing expenditure on social indices during the election campaign, and the union budget is a good place to start in reaffirming those commitments. On the contrary the Union Budget 2015-16 is widely perceived to be anti-poor and a bonanza for the corporates. While Corporate incomes have increased not only during the last fiscal year (2014-15) they have been increasing for quite a while now, corporate tax revenue has not kept pace with the increasing share of corporate income to GDP. This only shows that the corporates have not been paying taxes that they should have. Thus increasing tax rates on the corporate sector would have made more sense. On the contrary the Finance Minister instead lowered the Corporate Tax rate from 30 to 25 % for an effective 4 year period. Though various exemptions have been removed, the effective tax rate which stands at 23% (according to Jaitley) will continue to remain at 23% implying a lower tax burden on the private sector.
On the other hand the allocations for MGNREGS have remained virtually unchanged pegged at Rs. 34699 (as against Rs. 34000 last year) which does not include the arrears the Central government owes the states for the scheme. The financial curtailing of the employment guarantee scheme which provides a universal economic right to the people of rural India and the pro-corporate agenda reveals the ideology of the present NDA government. This budget would have far reaching effects with particular stress on various social spending on the States. Reductions were also made for ICDS, Mid-Day Meal Scheme and SSA with outright rejection to increase the honoraria of Anganwadi and ASHA workers. At the NITI Aayog meet it was announced that 66 central schemes would be rationalized and cut down.
These cuts have implication for a financially poor state such as ours where all the above schemes and poverty alleviation programmes depend largely on the largesse and generosity of the Central government. Any cuts or cap on the amount of central government outlay in effect means these programmes which are already starved of funds for many reasons such as the burgeoning arrears and unpaid wages accumulated over the years by the states particularly on MGNREGS ( some states have managed to clear part of the arrears by diverting funds from other sources but for which the Government must pay States one of which is to increase the funds outlay) would have to terminate or trim it down. The Chief Minister has already indicated this during the recent budget presentation.
The financial allocation to states as recommended by the 14th Finance Commission shows that Meghalaya received the lowest share of all north eastern states. The state’s financial position is already precarious. The dismantling of the Planning Commission which is one of the three channels for devolution of resources from the Centre to the states (the other two being the Finance Commission and the Finance Ministry) effectively means that flow of funds will be effected only from the Finance Ministry which is a closely controlled department body of the Central government and whose decision would have far reaching effects on resource poor states (with the demise of the PC). This has restricted the state government’s alternative source of funds, grants etc which would now seem likely to depend solely on allocation through the annual union budget.
The Modi government has justified the dismantling of the PC with larger resources being transferred to the States as per recommendation of the Fourteenth Finance Commission and that states should shoulder social spending responsibility equally (which so far has been mostly financed wholly or partly by the Central government). Actually the figures as far as total transfers to states consisting of tax devolution, loans and grants remains static which was 57% in 2014-15 as compared to 58% for 2015-16. Even the 58% transfer would depend on the actual budgetary revenue realized for 2015-16. If tax revenue falls short of the budget estimates, this would lead to cuts in the transfers to the states. There was a sharp cut by as much as 9% of the transfers to states in 2014-15. And since the budget estimates for tax revenue collection this fiscal is estimated to rise by 15.8 % (even as nominal GDP is expected to rise by only 12.7 %) any shortfall in tax receipts (as happened in 2014-15) will further affect transfers to states thereby jeopardizing the states budgetary outlay.
On the other hand States are obligated to contain fiscal deficit which usually becomes an excuse for reducing certain expenditures (already allocated) in order to meet the target. This has already happened in Meghalaya where the fiscal deficit is apparently less than 3% as claimed by Dr Mukul Sangma for the last three years. Further reduction in non plan expenditure which is pegged at 20% would consolidate this further. The NGT ban on coal mining provides a convenient excuse for this trimming down exercise. Moreover the Chief Minister seems to be in a hurry to make the state a surplus revenue state. This could come at cost given that the Government has already committed to make Meghalaya a poverty-free state by 2020. How that would happen if expenditures are curtailed and income generation is constricted is a huge question. There are already demands for higher SSA salaries, increase in daily allowances and fixed honorarium for ASHA workers etc.
The UPA government and subsequently the NDA government resorted to both plan and non plan expenditure cuts in addition to a slew of austerity measures. Austerity measures in Meghalaya are not part of the CM’s vocabulary yet. Even so such cuts are supposed to be stop-gap for short term solutions. The real challenge is to broaden revenue enhancement in the long term. There seems to be none at the moment given that the NGT ban has adversely affected revenue generation of the government. Instead the government seems to bank on tried and tested formula such as tax on diesel, withdrawal of exemptions etc. These are not new and hence do not provide long term solutions to the fiscal crisis the state is facing. It is however clear that even if NGT revokes its ban, the fiscal position of the state is going to be weakened even as we manage to bring down the fiscal deficit. Time for the government to look beyond the cliches!