By Our Reporter
SHILLONG, May 17: Meghalaya’s fiscal trajectory stands at a critical crossroads—buoyed by an uptick in central grants and improved revenue indicators, yet weighed down by persistent challenges in managing public debt and fiscal deficits.
According to recent findings from the NITI Aayog – NCAER States Economic Forum and a report titled The State of the States: Federal Finance in India by Barry Eichengreen (University of California, Berkeley & NCAER) and Poonam Gupta (NCAER), the state has witnessed a significant improvement in its share of Central Grants-in-Aid under the 15th Finance Commission. However, it continues to face difficulties in achieving fiscal consolidation.
The report highlights that Meghalaya’s share of total Central grants increased from 0.4% under the 14th Finance Commission to 0.7% under the 15th—a substantial 0.3 percentage point gain. This increase reflects higher allocations in critical areas such as local bodies, disaster response, and state-specific priorities. Notably, this includes an Rs 800 crore allocation to transform Shillong and support infrastructure development for the 2022 National Games.
Despite these financial inflows and a revenue surplus of Rs 653.92 crore after a three-year gap, the state continues to struggle with fiscal consolidation. Meghalaya’s fiscal deficit-to-GSDP ratio in 2023–24 stood at 5.71%, exceeding the target range of 4% to 4.5% set under the amended Fiscal Responsibility and Budget Management (FRBM) Act. Similarly, the debt-to-GSDP ratio has remained above threshold levels for five consecutive years.
Projections by the National Council of Applied Economic Research (NCAER) indicate that Meghalaya’s debt levels are likely to rise sharply by 2027-28—making it the only northeastern state among its peers expected to see such an increase. When contingent liabilities are included, the state’s debt-to-GSDP ratio could exceed 61%, underscoring the urgent need for a more sustainable fiscal strategy.
According to the report, the state’s fiscal deficit-to-GSDP ratio of 5.71% is already well above the prescribed target, and the debt-GSDP targets have been missed for five years in a row since 2017–18.
Using both ten-year and five-year average growth and deficit benchmarks, the report projects a significant increase in Meghalaya’s debt burden by 2027-28.
Under the ten-year average scenario, Meghalaya is the only smaller northeastern state projected to see a rise in its debt-to-GSDP ratio—from 44.1% in 2022-23 to 51.4% in 2027-28. If contingent liabilities—including government guarantees and off-budget borrowings—are considered, the ratio could increase further to 58.9%, marking a worrying 14.8 percentage point jump.
The outlook is even more concerning under the five-year average scenario, where Meghalaya’s debt-to-GSDP ratio is expected to climb to 52.6%, and with contingent liabilities factored in, it could surge to 61.4%—a 19.8 percentage point increase over the current level.
This sharp rise is attributed to a higher average primary deficit and a less favorable growth–interest rate differential (g–r) in recent years. Although the state has received substantial fiscal transfers from the Centre, the mounting debt indicates either overspending, underperformance in economic growth, or a combination of both.
Meghalaya’s fiscal challenges also reflect broader trends among the smaller Northeastern states. The NCAER study notes that when benchmarked against five-year averages, debt-to-GSDP ratios are projected to rise across nearly all these states, particularly when contingent liabilities are accounted for.