Odisha’s fiscal turnaround is a striking story. From a time when RBI had barred Odisha government from availing overdraft for 200 days, the state has come to a stage of surplus budget. Odisha is the top Fiscal Responsibility and Budget Management Act compliant state. How did this happen?
Odisha was considered one of the most fiscally-stressed among all general category states in late 1990’s and early 2000’s. The report of the 12th Finance Commission has highlighted the fiscal and debt stress of Odisha. The debt to GSDP ratio of Odisha in 2002-03 was 50.73 per cent (pc) compared to all states’ average of about 34 pc. The liquidity position was in bad shape. The state had no money to even repair roads and treasuries were virtually closed for most of the days. The state government could somehow manage its affairs by disbursing the current salary.
When Naveen Patnaik was sworn in as the chief minister, the state was in a very bad shape. The Super Cyclone of 1999 only made things worse. But the chief minister had promised the people to bring financial stability back in Odisha. Our government took a number of strong fiscal correction measures both on resource as well as expenditure side during the early part of the century to bring the state finances back to stability.
Revenue augmentation measures were taken which included introduction of taxes on profession in 2000; introduction of VAT in 2005; use of IT-based tools in tax administration for improving compliance, periodic revision of rates of various tax and non-tax revenues; monthly review of revenue collection etc. Successful mining leases through auction in recent years also added to the stability of the state’s finances.
Adoption of a rule-based fiscal policy through enactment of Fiscal Responsibility and Budget Management Act (FRBM Act), 2005 coupled with prudent debt management in the last two decades have also been part of our fiscal turnaround strategy. Odisha has the unique distinction of adherence to all the parameters envisaged in FRBM Act every year since enactment.
We have not only brought in fiscal turnaround, but more important is we have been able to maintain the fiscal stability even in testing times like COVID because of the policy of our government to adopt fiscal prudence.
You have presented the highest ever budget of Rs 2.30 lakh crore with a projected growth rate of 8 pc, which is more than the national average aimed by the Centre. What will be the focus of the government to achieve such growth?
Odisha is consistently growing faster than national average in spite of its exposure to frequent natural disasters. It has been possible due to the policy of the state government to invest in critical sectors, which will not only foster growth but also create an enabling environment for private investment. State Budget 2023-24 focuses on higher investment in infrastructure, connectivity, logistics and promoting industries and MSMEs. The budget also focuses on creating women entrepreneurship through SHGs. Many promises made in the third edition of Make-in-Odisha Conclave-2022 also find place in the budget. I am sure, with these interventions, the state would be able to achieve 8 pc growth in 2023-24 in spite of various challenges.
The per capita income gap at national and state level has narrowed down from 31.6 pc in 2015-16 to 11.7 pc in 2022-23. You have also predicted in your budget speech that the state per capita income is expected to surpass the national per capita income in the coming few years. Has the government set any time frame for this?
The gap between the national per capita income and that of Odisha is steadily narrowing down due to consistent higher growth exhibited by the state. We are projecting to continue to register higher than national growth because of our policy of investment in critical infrastructure and attracting large-scale private investment. It is very difficult to predict the exact timeline for the state to surpass the national per capita income as there are so many variables involved in it. However, looking at the current trend and the state’s potential to register higher growth, Odisha can achieve this feat in the coming five to seven years. Maybe by 2029, or before that. There are two factors at work here. On an average, the state growth has been one per cent more than the national average since the last 10 years. The other factor is population. Our growth in population is lower than the national average. Jointly, these two factors are contributing to increase in per capita income.
The budget seems to be a bit more dependent on the funds flow from the Centre. Is there a plan B for implementation of different schemes and projects if the funds flow decreases from the Centre as the economy is passing through a rough phase?
Over the years, the state’s dependence on central transfer is gradually decreasing because of robust growth in own revenue. In the annual budget 2023-24, own revenue is projected to contribute to 57 pc of the total revenue pool. However, if there is shortfall in central transfer, the state can still utilise buffers and unutilised fiscal space to bridge the gap.
Mineral revenue is one of Odisha’s major revenue sources. Is the government being too dependent on it? Considering it is vulnerable to extraneous factors (like pricing, conflicts, global economic downturn), does it have a risk diversification strategy?
Mining revenue used to contribute about 10 pc of the resource pool of the state government. In 2021-22, we could see a quantum jump in mining revenue (almost 3.5-fold increase from the level of Rs 13,700 crore to Rs 48,000 crore) primarily because of the very successful award of mining leases through adoption of a transparent auction process. This jump is not because of higher extraction but due to higher premium (premium not as an absolute amount but premium as a percentage of the IBM price). This premium will be tagged to the particular mine throughout the lease period, cutting down on the risk factor. This has created a big opportunity for the state government for higher investment, at the same time posing a risk of fluctuation in resources as prices of the commodities is a major determinant for the revenue from this source.
To mitigate our finances from such risk, our government has taken an innovative step to create a budget stabilisation fund during 2022-23 with an initial assignment of Rs 13,700 crore. Odisha is the first and so far, the only state in the country to take such initiative.
Does this budget have adequate focus on CAPEX?
CAPEX has a much higher multiplier effect. Public assets created through higher CAPEX may not give immediate direct return, but it can be an enabler to boost the economy through improved connectivity, better access to market and can attract more and more investment to the state.
This budget has a large CAPEX allocation of about Rs 51,683 crore, which is six per cent of GSDP. This is one of the highest by any state in the country. Our focus areas in our big CAPEX plan include road, rail and air connectivity, connecting unconnected villages, logistics, digital network, irrigation facility, providing 24x7 quality power supply, providing piped water supply to houses, urban infrastructure etc. We are also infusing CAPEX to create industrial as well as MSME parks to facilitate private investment.
Is the government still continuing the outcome budgeting?
The state has been doing outcome budgeting for more than 10 years now. Currently, 27 major spending departments are preparing the outcome budget every year. Programme Performance and Outcome Monitoring Unit (PPOMU) is providing the required technical support to the departments for outcome budgeting and outcome monitoring. We have put in place an online outcome budgeting module for the last two years for enhancing the effectiveness of outcome budgeting through quarterly monitoring.
The government has also presented the highest ever agriculture budget of Rs 24,829 crore which is 20 pc more than last year. What is the focus area of this year’s agri budget?
We have given a big push to the agriculture and allied sector in the budget for 2023-24. We would focus on irrigation, crop diversification, agri-entrepreneurship, marketing, allied activities to increase farmer’s income. We are planning for completion of most of the major irrigation projects during FY 2023-24, so that benefit reaches the farmers.
You have also announced a revolving fund of Rs 2,000 crore for paddy procurement. But in the Central budget, funds for paddy procurement has been slashed by Rs 20,000 crore? How will it impact the state?
There is reduction in allocation in Union Budget 2023-24 for paddy procurement compared to current year. Even during the current year, there is delay as well as lower reimbursement of funds which is adversely affecting timely payment to farmers. Further reduction in allocation would make the situation even worse. In order to ensure timely payment to farmers, we have created a revolving fund for paddy procurement with allocation of Rs 2,000 crore in 2023-24(BE).
Opposition political parties have alleged that the 2023-24 budget is an election budget. What is your comment?
Our focus in budgets of recent years is building a “New Odisha – An Empowered Odisha”. We have been giving equal importance to growth as well as inclusiveness. While on one hand, we are focussing on higher CAPEX to foster growth and attract private investment, on the other, our focus is also to create healthcare facilities for all, quality education and welfare of vulnerable sections of the society. Higher allocation in both infrastructure as well as social sectors is a reflection of our commitment. Budget 2023-24 is no different. It’s a pro-people and balanced budget with focus on all-round development of the state.
Several states have promised and several have announced to revert to the old pension scheme (OPS). Will your government resort to the OPS scheme if a similar demand comes from government employees?
We have adopted a contributory pension scheme since 2005 and are regularly contributing the employers’ share. So far, no proposal to revert to the OPS scheme is under consideration of the government.
State’s per capita debt has been increasing constantly for the last 21 years. Will it not hamper the state’s long-term economic growth? What measures has the Government put in place to reduce this mounting debt burden?
With increase in size of the economy and increase in per capita income, it is usual the per capita debt increases in absolute terms. However, what is more important is how your per capita debt increases vis-à-vis per capita income. In other words, increase/decrease of the ratio of per capita income to per capita debt is an indicator of movement of per capita debt. During 1999-2000, per capita debt was Rs 4,918 compared to per capita income of Rs 13,012. As on January 31, 2023, the per capita debt is Rs 18,985 compared to per capita income of Rs 1,50,676. Thus, during the period, the ratio of per capita income to per capita debt has increased from 2.65 times to 7.94 times (by January end this year). The state now spends a very small amount on debt servicing and more on development spending, which is one of the major reasons for higher growth in the medium-term. With debt-GSDP ratio at about 11.5 pc, the state’s debt position is sustainable and there is nothing to worry about. We are among the best performing states in the country as far as debt management is concerned.
While the state’s economy is growing at a higher rate than the national average in the past few years, the unemployment rate is also still high.
Overall decline in unemployment rate has been in line with growth in Odisha economy. As per Periodic Labour Force Survey (PLFS), unemployment rate in Odisha was 7.1 pc during 2018-19 which has declined to 5.3 pc for 2020-21. The decline in unemployment is clearly evident from increased labour force participation rate. Our labour force participation has increased from 51.2 pc in 2018-19 to 56.5 pc in 2020-21. Further, the worker population ratio has reached 53.5 pc during 2020-21.
The budget provision in social security and MSME sectors is also high this time. We believe that employment is proportional to growth in MSMEs. Besides, we have created a Rs 1,000 crore corpus fund to facilitate timely payment of wages under MGNREGA pending receipt of Central assistance for the wage component. Since Union Finance Minister Nirmala Sitharaman has said that MGNREGS is a demand-based scheme, we will demand adequate funds under it.
We are looking at the entire ecosystem, the demand and supply part of it. So we will train children right from school level in new technologies so that they can get better jobs in future. Under NUA Odisha, we plan the same for college students. The idea is to create an industry ready workforce which will attract investments. You have seen, in the last one year, many companies like Deloitte, Capgemini, IBM, because there is a workforce that is readily available. The skill development department has a target of training 8 lakh people and now even SHGs are being trained to convert them into SMEs (small and medium enterprises). So, all of this will lead to new employment opportunities.
The budget has Rs 1,358 crore for Industries and MSMEs. Is that good enough to propel the MSME sector?
A large number of projects are being funded under various groups. There is SIDBI Cluster Development Fund wherein loans are available at rates which are at par with what RIDF of NABARD offers (about 4.5 pc). Current year, we will get between Rs 2,500 crore and Rs 3,000 crore as loans and next year, we have a target of touching around Rs 5,000 crore. IDCO was never supported by the government. We are now looking to providing IDCO loans of about Rs 700 crore to Rs 800 crore for land acquisition and keeping the land ready for industries to come in. Because, so far our focus was on demand and supply of land. The idea now is to keep infrastructure, workforce readily available so that the gestation period for industries, MSMEs is reduced. And the new initiative of interest subvention for MSMEs will go a long way in promoting MSMEs and generate a lot of employment.
The Centre has been alleging that the Odisha government has not been supportive when it comes to providing land for railway projects in the state. What is the truth?
How is Khurda-Balangir rail network progressing then? It is progressing well. Odisha has time and again been raising the issue of good railway connectivity for the state with Centre but the latter has turned a deaf ear to our demands. In fact, the state government provides free land and bears 50 pc of the project cost (in some cases) with an aspiration that it would get more railway projects. But that has never happened.
In the case of the Bargarh-Padampur railway line, they (Railway Ministry) said the state government did not give land. But how can we give land when they have not given us the survey, alignment reports of the project yet? We are ready to give land for the line but they have to first give us details about the project.
When it comes to connectivity, Odisha is the only state that is providing free land for airports also. For Jharsuguda airport, the state government gave the land free of cost and also bore 50 pc of the project cost. Airport operations cost is also being borne by the state and Odisha Police has been deployed for airport safety instead of CISF.
The government is also under attack from the opposition for its poor expenditure capacity while the budget is ballooning every passing year.
The pace of expenditure got affected in Covid years due to many constraints, which was the case with almost all states. However, the situation has substantially improved during the current financial year. The programme expenditure till end of February this year has shown an increase of more than 25 pc compared to corresponding period previous year.