By Kitdor H. Blah
The Meghalaya 2026-27 budget walks a tightrope. It keeps its fiscal deficit to 3.5% of GSDP, within the limit of the Meghalaya Fiscal Responsibility & Budget Management Act but beyond the recommendation of the 16th Finance Commission, which capped it at 3% of GSDP. Hence while this is not sustainable in the long run, it is not excessive either. The interest payments to revenue receipts ratio is projected at 5.8%, higher than the 5.3% & 5.2% of 2025-26 and 2024-25, but lower than the 6% of 2023-24, 6.9% of 2022-23 and 7.2% of 2021-22. This is not excessive either, with anything under 10% being seen as manageable in the long run. The discontinuation of Revenue Deficit grant has not affected Revenue Surplus. The State has projected a Revenue Surplus of Rs. 4771 crore, which is 6.25% of GSDP, as against the 2025-26 Revenue Surplus of Rs. 5035 crore which was 7.6% of GSDP. So, the revenue surplus has decreased in actual numbers and as a percentage of GSDP even though it has increased. The budget is non controversial in itself. But the one fact that looms over the budget is that we are still totally dependent on Tax Devolution and central grants to meet any healthy parameters in Fiscal Responsibility and Budget Management. Tax devolution by the Centre is constitutional, but changes in the Centre’s policy will affect our receipts. The growth of the state’s own revenue is also disproportionately lower than the growth of GSDP which signifies revenue leakage. And the GSDP growth is disproportionately high in the service sector, which shows rising inequality.
The 16th Finance Commission has reduced the weight of criteria that are favourable to the state in the share of Central Taxes. Meghalaya’s share of Central Taxes has gone down from 0.77% to 0.63%. Meghalaya had made submissions to the 16th Finance Commission (FC) to increase rate of Forest Cover from 10 to 15%, and to add another criterion, “Rural dispersion of population.” But the 16th FC did not implement these submissions. The 16th FC has given more advantage in shares of central taxes to high population states, increasing the weight of population size from 15% to 17.5% and reducing the weight of population control from 12.50% to 10%. Contribution to GDP has been added with 10% weight, benefitting states with high GDP. Income distance has been reduced, reducing shares of lower GSDP states like Meghalaya. Fiscal responsibility has been removed as a parameter. This tells us that the policy of the Centre is to reward high population, high spending, reduce assistance for lower GSDP states, assisting those states who have not increased their tax revenue and who have not kept their borrowing in check. If this policy continues for the next 10 years, states like Meghalaya will have to borrow more to spend more in order to keep up with other states for share of central taxes.
Further, the states’ share in the Divisible Pool of Taxes (which is now 41%) might decrease in the future. This is unlikely, but not impossible. But what is highly likely is that the value of the divisible portion of taxes itself will be reduced by increase in central cess and surcharges? After all, the Centre’s Interest Payment to Revenue Receipts continues to grow steadily from 37% to 40% this fiscal year. The Centre itself is neck deep in debt. What will happen to our state’s Revenue Surplus, our Fiscal Deficit, the Debt to GDP ratio, Interest Payments to Revenue Receipts, then?
The 10 billion dollar economy is not just possible, but probable, except for some unforeseen crisis. It is a number that will be reached in the next 2 to 3 years – Rs. 86,000 crore of money being transacted in the state. But by all measurements, the State is not on the road to financial freedom. It will continue to depend on Central Transfers. I am wary of this because if any financial hiccup happens in the Centre, we will be totally dependent on debt.
The growth of GSDP in the last 6 years, from Rs. 37,877 crore to Rs. 76,320 crore, has not resulted in an increase in the State’s Own Revenue as percentage of Revenue Receipts (own revenue plus central transfers). In fact, this year it has gone down from the usual 20% to 18% even though our share of central taxes has reduced. This tells us that we are increasingly dependent on Central Transfers. Despite the growth in economic output, the State is not on the road to financial freedom. Despite a growth in GSDP of 101%, the State’s own revenue has grown less proportionately at 89%. Moreover, the State’s own revenue as a percentage of GSDP keeps hovering at 7%. I feel that the opposition needed to have pressed the Treasury Bench on this. Why is the growth of revenue low in response to the growth in economic output? Because this may be due to leakage of revenue.
While the state’s GSDP has grown 101% in the last six years, its own revenue has grown disproportionately lower at 89% – hardly a road to self sufficiency. But if you look into this revenue, it is Tax revenue that has grown 100%. This is expected in the least, that as the volume of goods and services being transacted increases, the Tax revenue on these transactions should also increase. Moreover, some of this growth in Tax revenue may simply be due to hikes in excise duties, or tax rates. State GST comprises the majority of tax revenue, around 50%. But if you look at the non tax revenue – collection from the services provided by the state and return on its investments and loans – we see that it has grown only 50%. In the same period, Revenue Expenditure has grown by 60%. In simple words, the cost of the government’s operations of its social and economic services has grown by 60% but the collection on these services has grown only 50%. Moreover, any increase in Total Revenue is offset by Interest payments and debt repayment. Debt repayment is a good thing, but this is also offset by new borrowings. Our capital expenditure has grown from 15% to 23% of total expenditure, but this has not created a path to financial freedom. The state’s expenditure on PSU’s has resulted in a drain of wealth. The Power Sector continues to drain our wealth and the Government continues to infuse money into it through long term borrowings. The Power Sector has been the major recipient of the state’s investment, over 90%, and it has also been the main contributor towards the losses on investments.
But the biggest wealth drain is that we still import 80% of our food. The growth in GSDP does not mean that the money stays in the state. The high food import means that money is not retained in the state. It is a loss of both financial capital and human capital. This 80% food import is still not enough to meet the state’s needs, as 40% of children are stunted due to malnutrition, according to National Family Health Survey 5, although state’s data in 2025 shows it to be 20%. The reliance on high food import also means that food inflation is high. The Chief Minister announced that the new minimum wage in Meghalaya is Rs. 525, down from Rs. 541 in 2025 but higher than in the preceding years. It is the second highest in the country after Karnataka. But this wage rate is offset by high food inflation. High food inflation drains the pocket of the people, which means they have fewer savings to invest in other meaningful growth. While GSDP has grown 101%, this is 61% in the service sector, and only 21% is in the agricultural sector. But 80% of the people of the state are employed in agriculture. The service sector is also more capital intensive while agriculture and manufacturing are more labour intensive. So the disproportionately high concentration of growth in the service sector and disproportionately low growth in agriculture means that Meghalaya’s economic growth is wildly unequal. And we do not need data to see the ground reality that even land and housing inflation is high, and this itself is a big sign of rising inequality.
Manufacturing is also low, with only 18% of GSDP being in this sector. With low growth in manufacturing, it does not seem that we will be on the road to self sufficiency any time soon. The disproportionately high growth of the service sector, when seen with disproportionately low growth of agriculture, low growth of manufacturing sector, and unequal economic growth, tells us that the state is increasingly reliant on external capital to fuel its growth. This is very harmful to our tribal indigenous state, when investment interests conflict with tribal interests. An example of this was the expunged Land Bank clause in the Meghalaya Investment Promotion & Facilitation Amendment Bill, 2025. But the Government does not need the Investment Act to allot revenue land to investors, as we can see that it has allotted 66 acres of land to Tata Group for a luxury resort. But why would the government allot land to outside investors and franchises, when 80% of the people subsist on agriculture and most of these farmers do not own land? Because this is the growth model of the state.
The question to be asked then is, whether the State’s priorities are wrong? The State’s investment in PSU’s is 90% in the power sector but only 2.45% in the agricultural sector. The Youth Budget & Gender Budget that aims at human capital amounts to Rs. 11,673 crore, but 20 – 40% of our children – the human capital – is affected by malnutrition. Agriculture in the state affects all human capital, including youth and women. Besides land allotment, the State also provides subsidies on power, interest payment, capital investment, etc. to industries. The Climate Action Budget amounts to Rs. 5,572 crore, yet the allocation towards agriculture is a paltry Rs. 664 crore. The budget that is due towards Climate Action would be better redirected towards agriculture. Had the state not subsidized the cement factories and other industries that affect the climate, the air quality, and that erode the size and quality of agricultural lands, the climate would not have changed so drastically.
