Santosh Kumar Mohapatra
Odisha Finance Minister Niranjan Pujari will likely present his third budget in February at a time when the economy is ravaged by the pandemic-induced recession. Indeed, it is a herculean task to present a please-all budget especially when the share of states from the divisible pool is going to be reduced in the current financial year and the next financial year for which budget will be presented.
Generating resources for budgetary outlay is a gigantic task especially when rich people are evading taxes. Scarcity of resources always stands as a great impediment to higher allocation for various schemes. Though the Centre had promised cooperative federalism, actually states are experiencing hostile federalism. Normally, the Centre has a lion’s share in the use of public funds. But heavy welfare obligations and higher expenditures lie with state governments. The implementation of GST has squeezed the scope for generating resources by state governments.
A state government generates resources by own taxes, non-taxes, disinvestment, borrowings, recovery of loans, etc. It gets funds from the Centre in the form of the state’s share from Central taxes, grants-in-aid through transfers to local bodies, from National Disaster Response Fund, Central sector schemes, and Centrally-sponsored schemes (CSSs). The share of net proceeds from Central taxes recommended to be devolved to states has increased from 29.5 per cent in the 11th finance commission (FC) to 30.5 per cent in 12th FC. It has further increased to 32 per cent in 13th FC and to 42 per cent in 14th FC. The 15th FC has kept devolution to states unchanged in its interim report for 2020-21 even as their cumulative share contracted marginally to 41 per cent after the number of states was reduced to 28 because of the reorganisation of Jammu & Kashmir into two Union Territories. But actually, states are getting much less with each passing year as the Centre’s revenue collection from cesses and surcharges though increasing by leaps and bounds does not constitute a part of the divisible pool. As a result, instead of 42 per cent, states are getting much less. In 2015-16, states were getting 35 per cent from the divisible pool instead of 42 per cent as decided by 14th FC. This further dropped to 32.4 per cent in 2019-20.
Total cesses and surcharges as a percentage of total revenue collected by the Centre have increased from 9.4 per cent in 2013-14 to 15.3 per cent in 2019-20. The Centre has estimated to collect Rs 3,69,111 crore through cesses and surcharges this financial year and it may increase in 2021-22 as new cesses may be imposed to mitigate the coronavirus crisis. So, all states including Odisha are severely affected and this the finance minister must raise in an appropriate platform. What is reprehensible is that between 2014-15 and 2019-20, the Modi government failed to utilise cess amount of Rs 3,59,000 crore.
A disconcerting news is that the percentage share of Odisha from net proceeds of the Central taxes and duties has declined from 5.16 per cent (12th FC) to 4.77 per cent (13th FC) and further to 4.64 per cent in the 14th FC. It is further likely to decline to 4.63 per cent in the 15th FC.
The Centre’s gross tax revenue may fall short of nearly Rs 5 lakh crore in the current fiscal affecting the its transfer of funds. Some of the Central schemes already cover the sectors chosen for performance-based grants. The state is expected to lose around Rs 8,000 crore this fiscal. Tax devolution and grant for Odisha till October 2020 is 21 per cent and 15.5 per cent less as compared to the corresponding period in 2019. Odisha, Uttar Pradesh, Maharashtra, Karnataka, Telangana, Kerala, Andhra Pradesh, Rajasthan, Madhya Pradesh, and Bihar have seen a major reduction in devolved tax revenue in the current fiscal. Odisha has received Rs 13,456 crore from the divisible pool between April and October against Rs 17,030 crore during the same period last year.
Similarly, the share of CSSs during the seven months was Rs 14,007 crore as compared to Rs 16,594 crore received during the period in the previous year. After the 14th FC’s recommendations, the Centre reduced the number of schemes from 67 to 29 and substantially increased the ‘matching contribution’ by states to 40 per cent from 25 per cent earlier. The proposal to reduce Central share further will subvert the financial health of states. The states should demand a higher percentage of contribution from the Centre in CSSs.
However, the Odisha government is doing well in comparison to other states in the pandemic times. As of August, the own tax revenues of state governments were 3 to 38 per cent lower than last year. In Odisha it is 14.8 per cent lower. Only Tripura, Meghalaya, Sikkim, Chhattisgarh are better placed compared to Odisha. In case of own non-tax revenues of state governments, all states have negative growth ranging from – 8 to – 82 per cent. But only two states have positive growth — Tripura 11 per cent and Odisha 36 per cent.
The state’s own tax as per the percentage of GSDP was estimated to be 6.43 per cent in 2020‐21. Though this is better compared to many states, it is still behind the target of 6.75 per cent as envisaged by the 13th FC. Similarly, non‐tax revenue as a percentage of GSDP was estimated at 3 per cent in 2020‐21. Hence, the state’s own revenue (both tax & non-tax) as a percentage of GSDP was estimated at 9.4 per cent in 2020-21, but it is below the record high of 9.51 per cent achieved in 2015-16. However, it is better than the national average of 8 per cent.
It is high time the Odisha government explores various avenues to enhance its own revenues, otherwise resources crunch will hamper progress and the state may be dragged into a quagmire of debt trap. A committee should be constituted to explore the possibility of raising resources. The government should collect taxes that are pending and curb tax evasion. The state government may impose some new taxes like pollution tax, may enhance entertainment tax too. It can raise resources by imposing rent by leasing unused land, quarters of closed industries, barren land, and a higher tax rate for those having more than one house or plot in an urban area, or using more than one car/luxury car.
The author is an Odisha-based economist. Views are personal.