By Sumarbin Umdorhe
In the six years since Conrad Sangma presented his first state budget in 2018-19, the State nominal GSDP has increased to Rs. 41,000 crore today growing at a CAGR of about 7 per cent (5.6 per cent in real terms) despite the contraction of the state’s income in 2020-21 due to Covid-19. Presenting the vision of the MDA.2.0, the Chief Minister has set an ambitious and challenging target to double the state’s income to a 10 billion dollar economy in the next five years which would require the state’s economy to expand at double the rate of growth achieved in his first term. This column looks at some of the important issues related to state finances gleaned from the budget speech as well as those that came up during the deliberations in the just concluded budget session.
On the receipts side, the major achievement highlighted in the budget is the manifold increase in funding under externally aided projects (EAPs) in the last few years. It is important to stress here that sourcing funding from multilateral agencies such as the World Bank, IFAD and Asian Development Bank is a competitive process involving preparation of project reports, scrutiny and approval of multiple central ministries, followed by appraisal and negotiation with the external agencies. The criteria for selection of projects have also changed over the years as emphasis is now on projects that create transformational impact and are innovative in approach and financing. In financial year (FY) 2021-22, the state had 13 EAPs with total approved assistance of Rs. 5000 crore with 91 percent of this amount coming to the state as grants under additional central assistance. The government, therefore, deserves credit and acknowledgement for its efforts and success in securing these project funding which matter greatly for a small state with limited private investment and own revenue.
The state is also doing quite well in the mobilisation of own revenue when compared to other states in the region indicated by the ratio of own tax revenue to GSDP which stood at about 7 percent in 2021-22. Even at the present level of income, revenue collection can still improve through better tax collection and plugging of revenue leakages, something that has been regularly highlighted in the audit report of the CAG. However, going by the trend of recent years, the own revenue target of Rs 4000 crore in FY 2023-24 does seem to be an ambitious target to achieve.
Another component of receipts under the state’s consolidated fund is the public debt which is projected at Rs.2339 crore in 2023-24. In 2021-22, the state government had relied heavily on borrowings to sustain the expenditure level which touched Rs. 4000 crore (78 per cent more than the budget estimate of that year) increasing the state’s accumulated debt to almost Rs.15,500 crore by the end of FY 2021-22. Any shortfall in revenue realisation this FY will again compel the government to fall back on borrowings which would take the outstanding public debt to GSDP ratio well above the Meghalaya FRBM ceiling of 28 percent. However, the debt position of the state is not that alarming when compared to highly debt stressed states like Punjab, Kerala and others. Further, as the state is on the road to recovery from the impact of Covid-19, the focus should be on revival of the economy even at the cost of breaching the borrowing target, albeit at a reasonable range.
Coming to allocations for 2023-24, we find that about 22 percent of the allocation or about Rs. 4800 crore is earmarked to the Finance and Planning departments which are both under the portfolio of the Chief Minister. This clearly shows the priority and importance given to the implementation and monitoring of key projects and developmental schemes to ensure that they meet the stated performance and impact parameters. Other top allocation in this budget is for Education and Health sectors with the per capita spending of these two departments projected at Rs.7500 and Rs. 4750 respectively. However, a huge chunk of the allocation is towards salaries which in the case of Education accounts for 70 percent of the allocation. The situation in this department is a manifest of the challenges of managing the finances of the state where committed expenditure (on salaries, pension and interest) eats up a huge chunk of revenue receipts (58 % in FY 2019-20). However, the state’s committed expenditure in the last two years has come down significantly to below the average spending among states in the country.
Overall, capital expenditure (Capex) which include acquiring of fixed assets and repayment of loan has also increased steadily since 2017-18 (Rs. 983 crore). The budget allocation of nearly Rs.5000 crore in this FY, if realised, will have tremendous impact on state’s economy as Capex has a much higher multiplier effect on income and output (2.45 impact and 4.5 cumulative) compared to revenue expenditure where the multiplier effect is below unity. Increased spending on infrastructure will also create the necessary conditions for attracting private investment besides boosting the productivity and efficiency of existing economic activities.
Another persistent challenge for state finances that was highlighted by the Chief Minister in the budget session is the poor financial performance of state-owned public sector enterprises (SPSEs) which continue to incur losses, requiring financial support in the forms of grants and guarantees for their market borrowings. A case in point is MCCL on which the state government has continued to infuse funds with no sign of it coming around- the very definition of throwing good money after bad. Given the continuous drain of limited public resources on these enterprises, a time has come for the state government to take bold decisions on what to do with most of the loss-making SPSEs. These measures could include closure and outright/strategic sale along with a package for rehabilitation of employees through voluntary separation/retirement scheme (VSS/VRS), retraining and redeployment, as well as other measures.
Going beyond the budget figures of receipts and expenditures, Meghalaya Budget 2023-24 is a statement of the bold vision of the state government to transform and catapult the economy from the low productivity trap to high productivity growth by enhancing the productive capacity of the economy. This is sought to be achieved by focusing on productive resources through promotion and support of high value farm produce (Lakadong turmeric, horticulture and livestock missions) and investment in tourism activities (Homestay scheme, Luxury Tourism Vehicle Scheme); building entrepreneurial capabilities (through projects like Prime Start Up Hubs, Skills Meghalaya and Aspire); and creating production linkages (Focus Plus, Collective marketing centres, Prime Hubs). Another important announcement in this Budget relates to initiatives to promote sustainable development and protection of the fragile ecosystems of the state through projects like the World Bank funded ‘Community led Landscape Management Project, JICA funded ‘Small and Multi-purpose Reservoirs’ and the ‘Protection of Vulnerable Catchment Areas in Meghalaya’.
Despite the disadvantages that the state faces on many fronts, serious efforts have been made in the budget proposals of 2023-24 to accelerate economic growth post covid 19 pandemic and provide opportunities to all sections to thrive and grow through enhanced financial allocation across all sectors and formulation of innovative development initiatives and projects. However, the impact of these proposals will only be felt by the citizens when they are matched with effective implementation and transparency and accountability in the spending of public resources.
(The writer teaches Economics in NEHU and can be reached at [email protected])