By Dr Sridhar Kundu
The state government of Meghalaya presented its budget for 2022-23FY on 9th of March,2022. Through this budget, the government has tried to architect a long run growth model for the state, which is stable, sustainable, and inclusive. These policies are made looking at various priorities of the state as highlighted in the Governor’s address to the House on March 4, 2022. Some of these policies were highlighted in my previous article on this edit page on March 5, 2022.
Policies
a. Rise in public spending- Total spending by the government otherwise known as public spending, has increased from Rs. 17,323 crore in 2021-22(BE) to Rs.18,881 crore in 2022-23(BE). The spending growth is estimated to be about 9 percent. However, total spending of the government has increased about 18 percent per annum since 2018-19. The year 2020-21 witnessed a major rise in public spending over 58 percent. Total public spending includes both capital spending and revenue spending.
b. Capital spending- By capital spending we mean, the spending by the government on creation of fixed assets. Expenditure on building roads, railways, airways, hospitals, schools, and colleges can be defined as capital expenditure. Rise in capital expenditure helps in expansion of these economic activities. The government fixed its capital spending for the year 2022-23(BE) at Rs.3500 Crore, which is about 9 percent of GSDP. In the last five years, the capital spending to GSDP ratio is on a rising trend. In the year 2017-18, the capital spending to GSDP ratio was about 4.8 percent.
c. Revenue Spending- Revenue spending is defined as expenditure borne by the government on functioning of the existing assets. This is otherwise known as running cost or variable cost. Expenditure on salaries, pensions, subsidies, interest payment etc, fall under this category. Total revenue spending of the government is fixed at Rs.15376 crore, an increase of Rs. 1420 crore over the previous financial year.
d. Fiscal deficit- It occurs when the state government spending exceeds its revenue. In the government budget making process, unlike the private sector, expenditure comes first, and income follows. Therefore, the government controls its expenditure by setting a limit to its fiscal deficit. The Fiscal Responsibility Budget Management (FRBM) Act,2003 set this limit at 3 percent of GDP(GSDP) to regulate the spending activities of the government and its borrowings. As the deficit gap is mostly met through market borrowings.
Economic slowdown during 2020-21 because of covid-19 pandemic made many of the state governments including Meghalaya to amend their respective FRBM Acts by increasing this limit to 5 percent and further reduce it by 0.5% annually to reach 3% by 2025. Rise in fiscal deficit provides some additional fiscal space to the state government to raise its interventions.
Accordingly, the Meghalaya state government fixed the fiscal deficit limit at 4.5 percent for 2022-23 FY. However, this deficit does not include the loan repayment which falls under capital expenditure in the budget accounts. Inclusion of loan payment would increase the estimated fiscal deficit ratio to 6.8 percent of GSDP.
Priorities
a. Improvement in standard of living- It is one of the important priorities of the state government as mentioned in the Governor’s address. Meghalaya stands as one among the lowest per-capita income states in India. In 2020-21, the per capita income of the state was Rs. 58,000 which is less than 5 times of Delhi and Goa. The all-India average per-capita income was Rs.94,000, which is about 80 percent higher.
The state is also not free from poverty. According to the NSS Household Consumption Expenditure Survey,2011-12, the state has absolute poverty of 11 percent, 12 percent in rural and 0.16 in urban. Rural concentration of poverty is high. No change in per-capita income since 2011-12 shows that there is hardly any possibility of improvement in poverty level. At present, above 3 lakh households are expected to be living below the poverty line.
b. Infrastructure- Development of infrastructure remains another priority before the government. Even after 50 years of the state formation, many villages in the state are outside of the road network connectivity. According to Mission Antyodaya, 2019, over 50 percent of villages do not have all-weather roads. The report further said that above 80 percent of villages do not have health sub-centres and about 15 percent villages do not have primary schools. There is not a single village in the East Garo Hills district that has access to an ATM, according to the report.
c. Urban agglomeration and traffic congestion has remained another priority of the state government. Concentration of waste in the residential area of Jowai city and its surroundings, a concern raised by many members in the house. Provision of water and sanitation and good healthcare facilities to the urban centres is also a priority for the government.
Policy vs Priority
a. A higher level of growth could be one of the important measures to attain the sustainable development goal of no poverty. The annual average growth of GSDP (@2011-12 constant prices) remained around 3 percent during 2011-12 and 2019-20 and came down to -7.2 percent during 2020-21.
The government has estimated a 9 percent growth rate during 2022-23. To achieve this and moreover, to sustain this growth in the long run, the government tried to emphasise more on capital spending. During 2019-20 and 2022-23, the capital expenditure has increased about 3 times. As said above, capital expenditure is made to create fixed assets formation which generates additional employment and contributes to economic growth.
b. A larger share of capital spending goes towards creating physical infrastructure such as roads, railways, airways, the government is trying to influence growth and standard of living. Building of infrastructure has a multiplier impact on growth and its sustainability.
c. The budget 2022-23 has given some priority to the agriculture sector and its productivity. A higher productivity would only address the cause of agricultural poverty.
The state government has laid out certain policies which are progressive. However, there is a need for sustained effort to attend the take off stage. As highlighted by the finance minister in his speech, to make the state among the top 10, the budget needs more expansion. There is a need for transparent policies of private sector participation in skill development, capital accumulation and technology upgradation.
(The writer is Senior Economist, Bharti Institute of Public Policy, ISB, Mohali)