Assam’s huge revenue and fiscal deficits to the tune of Rs.8,000 crore, has several economic consequences. The 2017-18 budget shows two figures of fiscal deficit, at Rs.7,702 crore, while the primary deficit is pegged at Rs.3,956 crore. The revenue collection recorded a surplus of Rs.2,400 crore.
Indeed there is a rise on the count of fiscal and budget deficits, given these critical deficits in the overall availability of financial, market and other sources of income of the state, despite a friendly government at the Centre. A little above four per cent of the State Gross Domestic Product of Rs. 2,58,337 crore is all deficit, which is going to have its crunching effect on promised expenditure of Rs.85,923 crore and the plan for internal borrowings to the tune of Rs.11,265 crore is both going to respond by cuts and rises, respectively.
If there is a cut in revenue expenditure and rise in internal borrowings, it will be very difficult to reduce budget deficit and manage repayment of loans as part of capital expenditure. Indeed the strategy of increase in gross revenue expenditure up to 98 per cent over and above Rs 41,931 during the 2015-16 of the last Congress government regimes sounds impressive, but an increase of mere 1.5 per cent at capital expenditure and four per cent rise in revenue expenditure, while the change from revised estimate to budgeted estimate. pegged at mere 3.5 per cent with negative growth in debt repayment, tell us a grim story of readjustments and financial re-appropriation of the invisible loss of resources.
The overall macro-economic growth pegged at eight per cent sounds quite high, as large part of this arises from growth in the service sector. As opposed to growth in the agricultural sector, which is negative, as large tracts of agricultural land were converted to non-farm uses during the 15-year rule of Tarun Gogoi, needed some quick-effect policies from the new BJP government led by Chief Minister Sarbanada Sonowal. It has lagged behind in this crucial agri-sector, as there was very little impetus to this area from budgetary resources.
Much of the funds allocated in 2017-18 under rural development do not cover agri-inputs and other related services and hence farmers have been almost ignored by the Sonowal government. What this dissymmetry between agriculture and service sectors points out is that a large part of the state’s workforce and a large number of rural households in the tea garden areas of the state do not have enough employment generation, while a thriving segment of the middle class has access to private sector and subsidiary contractual work in the secondary and tertiary sectors of governmental jobs.
The growth in State Gross Domestic Product arises from the ensemble of revenue expenditure in service and infrastructure sectors and financial flow from the Central government and from abroad. Although the state is yet to see much Foreign Direct Investment and Foreign Institutional Investor, except to the tune of an estimated Rs.10, 000 crore or so, it does not work as a major source of the state’s GDP. In effect the GDP arises from the state’s largely underdeveloped agri and forest resources, combined with mining and minor industries. As there is no state-level plan, the entire growth prospect in these key contributory sectors is left to the winds of the market, which does not bring much good tidings.
Herein comes the role of the Central government funding. Grants under the 14th Finance Commission was reduced from 3.6 per cent to 3.2 per cent, as Assam lost its forest cover from 38 per cent to 31 per cent. The first installment of the Finance Commission grant, totaling Rs.34 crore under local bodies and Panchayat Raj and funds meant for the Mahatma Gandhi National Rural Employment Guarantee Act are mixed up. There are many such mish-mash.
Another example is funds for the health and education and other such social sectors are examples of mix-up between Niti Ayog, finance ministry, state government schemes and Finance Commission grants. And such mix-up only creates a practice of diversion and overlapping without resulting into sector-specific growth and progress in terms of turnovers. The arbitrariness of funding under 10:90 or 50:50 between Centre and state, leave the latter befuddled as it is already reeling under huge fiscal deficit of four per cent under budget estimates of 2017-18. It shows that much of the Central schemes actually do not work on the ground. What is more critical is about the impact of institutional regression into paper bills and casualty of non-implementation of the announced level of expenditure results into an obvious curtailment of schemes. What is to be noted here is a rapid decrease in revenue expenditure in key social sectors in terms of palliative care and other such capability-enhancing activities by the state and it reappears in the form of “outstanding liabilities’ of the state that is on the rise from 17.3 per cent during previous regime to today’s 19.3 per cent of the SGDP.
More importantly, non-implementation results in reformulation, much of which appear as cosmetic without addressing issues of poverty, malnutrition, underemployment etc. Neither Niti Ayog nor state planning board (renamed as state innovation and transformation ayog) hardly address issues of structural demands, as grants for Sarva Siksha is reduced, mid-day meal becomes a state subject as Centre fails to fund it and grants for national health mission gets curtailed. Similarly for roads and infrastructure, not only there is a cut in the budget, but there is a mix-up between say PM AwashYojana and road-building projects by the state. To make matters worse, works done by central and foreign agencies get counted as expenditure by the state, as many of these agencies route their funds through state government channels.
If competitive federalism is to be taken seriously, then Assam’s loss in the share of 14th Finance Commission compounded with the state’s loss of special category status brings down capital expenditure in gross terms as it is based more on debt and borrowing than on revenue. Although the figure on capital expenditure goes up, one has to see this increase in terms of gnawing revenue deficit and outstanding liabilities. One option for the state is to cut down its social sector expenditure and thereby lose the chance of increasing aggregate demand and then get further shrunk in terms of proposing cuts in social sectors. Failure of the state government in supplying essential drugs free of cost in state-run dispensaries and hospitals, non-payment of MREGA funds on time, rushed expenditure towards the end of financial year shows that budgeted expenses towards general services, grant-in-aid and other critical public services remain undelivered.
As the state has very special needs in terms of its tea garden and other plain tribal territorial and autonomous institutions, the government has to keep special provisions for fund transfer and implementation of schemes supported by budgetary and financial mechanism, seemingly they have become announcement-based and based on knee-jerk responses. Only Rs.1,000 crore to autonomous councils from the Centre in 2015-16 still remain as the fig leaf for continuance of such funding by the state government.
The transfer of funds from the state government to such councils have remained a low key affair, although budgeted amount of Rs.3,885 crore sounds astounding, telling that large part of the budgeted sum will ultimately come from the Centre, as the Assam government disaggregated this sum under sustainable development goals. So, while tribal councils look for funds, their availability depends on formulating schemes and plans of current interest. The financial tethers are such that part of the state finances now comes from the Centre without much autonomy of state bureaucrats, while their disbursement depends on central guidelines.
To add to the woe, political patronage and direct political linkages determine the extent to which funding will be smooth.
The overall impact of such an institutional arrangement is that there is no funding framework that is locally developed, but it has been made so much top-down that funding agency decides for the very nature of schemes. As a result what has gone missing from Assam’s cash-strapped and capital-lagging economy is the much- sought after independence in funding and implementation decisions. Needless to say, that this is a major squeeze on the will of the state to fund itself without being dependent on outside funding agencies.
(THE WRITER IS AN ASSOCIATE PROFESSOR OF PHILOSOPHY AT NEHU, SHILLONG)