Is Orissa India's Best Fiscally Managed State?
Orissa has been a chronically poor state. In 2004-05, 57.2% of people in Orissa were poor. In the decade up to this year, or from 1994-95, the decline in poverty was just about 2.9 percentage points.
But fortunes have shifted remarkably since. Between 2004 and 2010, Orissa recorded a 20.1% decline in poverty as against a national rate of 7.4%.
IndiaSpend’s Dhritiman Gupta examined Orissa’s latest Budget for 2012-13 to look for insights on how the state manages its finances, both revenue as well as debt and came away surprised.
Particularly since the state’s social and financial indicators don’t seem to match the general perception of a region struggling to accelerate private investment and create economic growth.
Orissa’s Increased Revenues
One highlight of Orissa’s budget is a stress on increased revenues. Revenue surplus in 2010-11 was Rs 3,908 crore. While for 2011-12, the figure was Rs 3,149 crore as against a budgeted Rs 60 crore. This was thanks to higher than budgeted revenue collections, especially tax.
Incidentally, against a budgeted Rs 23,734 crore in taxes, Orissa collected Rs 25,409 crore; a surplus of Rs 1,675 crore. Non-tax revenue collections were Rs 4,999 crore as against a budgeted Rs 3,799 crore; a surplus of Rs 1,200 crore.
All in all, revenue collections grew 20.8% and revenue expenditure by 26.2 % in 2011-12. Despite a higher growth rate of revenue expenditure there was a healthy revenue surplus of Rs 3,149 crore; 1.39% of state GDP.
Comparing Orissa to states like West Bengaland Kerala we realise how well Orissa is actually doing managing revenues. West Bengaland Kerala had revenue deficits of Rs 17,273 crore and Rs 5,471 crore respectively in 2011-12. The two states lead IndiaSpend’s chronic over spenders list and also rank high up when it comes to Debt-GSDP ratios.
Worrisome Capital Account
The capital account (loans for e.g.) however is a cause for worry. Capital receipts have not been growing. In fact the receipts were much less than the budgeted Rs 6,606 crore at Rs 2,362 in 2011-12; a shortfall of Rs 4,243 crore. There have been consistent overruns on the capital account. In 2011-12, capital expenditure was more than receipts by Rs 5,351 crore.
First let’s take a closer look at the numbers.
|A) Revenue Account|
|1. Revenue Receipts||33,276||36,383||40,221||43,842|
|2. Revenue Expenditure||29,367||36,323||37,071||41,431|
|Revenue Deficit(-)/ Surplus (+)||3,908||60||3,149||2,410|
|B) Capital Account|
|1. Capital Receipts||2,301||6,606||2,363||5,596|
|2. Capital Expenditure||6,683||8,555||7,714||10,598|
|Capital Account Deficit(-)/ Surplus(+)||-4,381||-1,948||-5,351||-5,002|
|D) Debt as % of GSDP||20.07||-||17.59||16.55|
|E) Revenue Deficit(-)/ Surplus (+) as % of GSDP||2.00||-||1.39||0.93|
|F) Fiscal Deficit as % of GSDP||-0.34||-||-0.91||-1.83|
(Figures in Rs. Crore)
Yet, capital expenditure has stagnated around 1.5-2% of GSDP in the last 1o years. Perhaps as a response to this, capital investment has been stepped up by 25% in the budget.
Even though capital outlay on education, sports, culture department has come down, many departments have seen a substantial hike.
|1. Education, Sports , Art and Culture||414||238|
|2. Health and family Welfare||53||110|
|3. Water Supply and Sanitation, Housing and Urban Development||207||401|
|4. Welfare of SC, ST, OBC||282||415|
|5. Social Welfare and Nutrition||0||151|
|6. Agriculture and Allied Activities||143||154|
|7. Special Areas Program||163||728|
|8. Irrigation and Flood Control||1,722||2,266|
|10. Roads and Bridges||1,233||1,659|
(Figures in Rs. Crore)
It is estimated that with this increased allocation, capital expenditure will be 3% of GSDP. The real problem area, however, is capital receipts (mostly loan accounts), which are slowing down. Financing excess capital expenditure will become a problem if capital receipts do not rise accordingly.
Good Debt Management
Orissa has done a good job of managing debt. In 2002-03, Orissa had the worst Debt-GSDP ratio at 55.92%. Since then the ratio has fallen to 17.59% in 2011-12. It is expected to fall further to 16.55% in 2012-13. In contrast, the Debt-GDP ratio of West Bengalwas 37.9% and of Kerala was 27.33% in 2011-12.
Let’s take a look at how Orissa has controlled Debt-GDP ratio since 2002-03 when it was 55.9%
|Year||Debt-GDP Ratio (%)|
Source: Orissa State Budget FRBM 2012-13
Fiscal Deficit Under Control
Fiscal Deficit has also been kept well within the bound of 3% set by the Fiscal Responsibility & Budget Management (FRBM) Act. Fiscal deficit was 0.91 % of GSDP in 2011-12. It is, however, expected to go up to 1.83% in 2012-13.
As was seen, tax revenues in Orissa have been growing at an impressive rate. Yet, the state continues to add more reforms. The reforms are expected to boost the Tax-GSDP ratio of the state from 5.74% to 6%.
Let’s look into the reforms suggested.
- Lower rate of VAT has been increased from 4% to 5%.
- Tax has been imposed on ‘sugar and textile fabric’ at the rate of 5% under VAT Act.
The additional revenue will be used to increase the pension payout by Rs 37 crore to more than 37 lakh old, widows and differently abled persons from Rs 200 to Rs 300 per month from 1st April 2012. Orissa clearly seems to be paying sharp attention to the problem of social security.