By Dr Sridhar Kundu
The Meghalaya state government is going to present its budget for 2022-23FY, in the second week of March. There are many expectations from the government looking at various macro-economic challenges, the state is facing at present.
Challenges
The state economy has witnessed a most secular growth rate of about 3 percent per annum during 2011-12 and 2019-20. The covid-19 pandemic caused some additional injury to the economic health of the state during 2020-21 by reducing the growth rate to -7.2 percent.
Lower rate of economic growth of the state led to a stagnancy in the growth of its per-capita income. In 2020-21, the per-capita income of the state was Rs. 56470 (at 2011-12 constant prices) which is about 35 percent less than the per-capita income at all India level. Since 2011-12, the per-capita income of the state has witnessed a declining trend.
The basics of economics say that a stagnant economy does not possess adequate capacity to generate employment opportunities. According to Periodic Labour Force Survey (PLFS), total unemployment rate was 9 percent, 31 percent in urban and 5 percent in rural, in 2019-20. Urban female unemployment rate was 52 percent compared to 20 percent in male.
The Centre for Monitoring of Indian Economy (CMIE) provides a different picture on the state’s unemployment. According to this source, unemployment rate stands below 2 percent as on the last week of February,2022. Further, the sources say that the monthly average unemployment rate in the state has remained below 3 percent during 2018 and 2021.
The above employment statistics by the CMIE sources may not be a representative for the whole state looking at the trend of income and its growth since 2011-12. A stagnant economy at a lower level of equilibrium may not attain full employment. If yes, there is possibility of over employment in the disguised form, particularly in agriculture sector. The disguised unemployment generates negative externalities and impairs growth and productivity.
Further, standard of living of the people in the state is not construed to be improved. According to NSSO 68th round,2011-12, the poverty ratio of the state was 11 percent. A fall in per-capita income during 2011-12 and 2021-22 confirms the possibility of rising poverty level in the state.
Present status of government finance
On the revenue front, the state government has remained surplus since 2012-13. By revenue surplus, we mean, total revenue receipts over the total revenue expenditure. In 2021-22(BE), total revenue surplus of the state was Rs.1275 Crore, about Rs.500 Crore over and above the same in 2012-13. Annual average growth of revenue receipts was about 13.9 percent, stood taller compared to 12.4 percent in revenue expenditure during 2012 and 2021. This financial position of the state government, discipline or dullness, makes clear that it has obediently followed its revenue model while planning its expenditure strategy in every annual budget.
On the capital front, annual average growth of expenditure was about 21 percent during 2012-13 and 2021-22. The state government has resorted to open market borrowings to feed its capital expenditure on various socio-economic sectors. These borrowings over the years have accumulated to cause debt burden for the state. According to CAG report,2021, total debt of the state government was Rs.11533 crore, about 32 percent of the state GSDP.
Do’s for the Government
The government needs to increase its present capital spending limit and prepare a long run growth strategy for the state. Average growth of capital spending during 2012-13 and 2021-22 was about 20 percent. In the year 2020-21, the capital expenditure was two times higher than its previous year. The government needs to priorities certain sectors in its capital spending strategy.
a. Agriculture remained a key sector in the state economy. In 2019-20, the agriculture and allied sector contributed about 15 percent of its GSDP and 52 percent of state’s total employment. The sector faces lower rate of growth and productivity. Crop intensity is one of the lowest in the state showing that many agricultural land sown once in a year and remained barren after the first harvest. Capital spending in this sector is needed on the areas of extension programs in use of technology, creating infrastructure for better market access. This would help increasing productivity and help farmers get a better price of the product.
b. Besides agriculture, the rural economy needs additional support from the government in terms of generating physical infrastructure in health, education, and road transport. This activity would create wage employment generation in the rural areas. In this way, the additional labour force in agriculture sector would be pushed out and participate in productive activities.
c.According to PLFS2019-20, about 48 percent of workers in the state are self-employed in various sectors. These workers need additional support in terms of better credit access to grow in their occupation. The state government needs to lay out a plan for creation and growth of startups.
d.Dependency ratio is one of the highest in Meghalaya. According to PLFS,2019-20, about 68 percent of population fall under this category who live on others’ earning. Women play a key role in the development of family and nation. The state government needs to emphasize on the gender specific schemes in its expenditure model. Strengthening of the women self-help groups would help in improving the living standard and bettering quality life.
e. Last but not the least, a bigger push for the tourism sector is the need of the hour. It would help in creating local employment and local products to be marketed with a better price.
In conclusion, the government needs to improve its spending behaviour and move towards a higher intervention in terms of public spending to generate growth and employment. Having surplus in the revenue account may improve the stature of the government but it has certain economic cost. Further, every deficit is not bad. Public participation also creates new energy and helps crowding in private investment.
At present. the state economy is facing a lower rate of economic growth, lower level of income, higher level of unemployment and poverty. The economy needs a big push, and a higher public spending can leapfrog the economy from its present state.
(The writer is Sr. Economist, Bharti Institute of Public Policy (BIPP) Indian School of Business, Mohali)