Odisha finances hit as Central share declines

Implication on states like Odisha will affect federal structure: Panchanan

Published: 04th April 2022 08:14 AM  |   Last Updated: 04th April 2022 08:14 AM   |  A+A-

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Express News Service

BHUBANESWAR: Even as the economy activities are gaining pace slowly after a two-year slowdown following the Covid-19 pandemic, the State finances are expected to bleed further due to consistent decline in Central share - both in grants and devolution of taxes. 

The Central transfers have been consistently decreasing from 58 per cent (pc) in 2016-17 to 48 pc in 2020-21. The actual tax devolution was Rs 27,543 crore in 2020-21, the lowest in six years, against the 15th Finance Commission Recommendation (FCR) of Rs 39,586 crore.

Although, the maximum difference was in 2019-20 when the tax devolution to the State was Rs 30,454 crore, Odisha had received around Rs 3,000 crore more than the 2020-21 fiscal. 

The highest Rs 35,354 crore was received in 2018-19 as compared to the Finance Commission’s projection of Rs 41,656 crore. The actual tax devolution was Rs 31,272 crore in 2017-18 and Rs 28,322 crore in 2016-17 against the projections of Rs 36,005 crore and Rs 31,158 crore respectively.   

As per the latest State Finances Audit Report, the State’s overall revenue receipts were adversely impacted as Central Tax transfer and grants decreased by Rs 2,911 crore (9.56 pc) and Rs 1,084 crore (4.49 pc) respectively during 2020-21 over the previous year. 

The Budget Estimate (BE) for Central Tax Transfer was Rs 36,300 crore while the actual receipt was only Rs 27,543 crore during 2020-21. Similarly, the BE for grants-in-aid from the Centre was Rs 32,000 crore and the actual receipt was only Rs 23,068 crore. 

The shortfall in receipt of Central transfer affected the actual revenue receipt of Rs 1,04,387 crore being lower than the budgeted revenue receipts of Rs 1,24,300 crore by Rs 19,913 crore in 2020-21.

In contrary, the receipts of the State’s share of Union taxes had increased from 2016-17 to 2018-19. It declined by 13.86 pc in 2019-20 and 9.56 pc in 2020-21 over the previous year due to the pandemic induced economic slowdown.

Economists said the gap between FCR projections and actual tax devolution to the State has been consistently widening between 2016-17 and 2020-21.  “This is mainly because rising Central cess and surcharges. The number of cess and surcharges has increased substantially, but those are not included in the divisible pool. Besides, the Centre is also mobilising non-tax revenue and not sharing with the states,” said Secretary of Odisha Economics Association, Amarendra Das. 

The flexibility for states, he said, also reduced after the implementation of GST which is why many states have been demanding that the cess, surcharges and non-tax revenues collected by the Centre should be included in the divisible pool. “Or, there should be a constitutional amendment to reduce the number of cess and surcharges,” Das suggested.      

Former Finance Minister Panchanan Kanungo said the Central share is an assured source of revenue to the states and it helps them to have financial stability and predictability in their budget preparations. “The implications of declining share on states like Odisha will be more and it will affect the federal structure,” he added.


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