Home Finance Center Lessens Odisha Grant

Center Lessens Odisha Grant

Bhubaneswar: Financial Grants from Government of India under various heads have been reduced by 6 per cent during the financial year 2021-22 in comparison to the previous financial year.

The total transfer from the Union Government comes in the form of share in central taxes, and grants from the Central Government. The share in central taxes is likely to have a growth rate of 11.6 per cent in the medium term, as per State Fiscal Strategy Paper.

Looking at the Union Budget 2022-23, the State Finance Department has estimated that the grants from the Centre will be around Rs 32,788 crore in FY 2022-23 which is a growth of around 51 per cent over FY 2021- 22.  This is mainly due to the expected higher level of GST compensation during 2022-23 compared to 2021-22.

The share in central taxes during FY 2022-23 is estimated to be around Rs 36978 crore which is about 9.7 per cent higher than the previous year.

So, the total Central transfer is estimated to be Rs 69,766 crore during the current financial year of 2022-23 which is 26 per cent more than the previous year transfer from the Union Government, said the report.

On the other hand, Odisha’s share of the Central Taxes was also reduced from 4.642 per cent of the shareable pool to 4.629 per cent in the Report for the year 2020-21, which has been further reduced to 4.528 per cent in the final report of the Finance Commission for the period from 2021-22 to 2025-26.

This has resulted in reduced flow of united resources to Odisha, and there remains uncertainty for future flows of central funds from the Central Government, it said.

Since total central transfers constitute about 40 per cent of the total revenue receipts of the State Government and is about 8.7 per cent of GSDP, any uncertainty surrounding flow of central funds to the State is a fiscal risk to the State Government.

Moreover, the State is also likely to suffer due to stoppage of GST compensation payment by the Government of India.

During the FY 2020-21, the collection of compensation cess was less compared to the total deficits of the States taken together. So, the Government of India assisted the states by providing interest free loans instead of compensating in full. The repayment of the principal will be from the GST Compensation Cess.

Since, the revenue shortfall in Odisha due to implementation of GST is quite high, ceasation of GST compensation will affect the State to the extent of 1 per cent of GSDP during FY 2022-23 and afterwards, estimated the Finance Department.

The contribution of non-tax revenue from the mining sector has substantially gone up from 39 percent of own revenue in FY 2020-21 to 52 per cent in FY 2021-22.

Higher contribution from this sector poses a higher risk. Revenue from this sector is sensitive to price fluctuation and demand for metals in national and international markets. Also, it is subjected to variation in exchange rate between Indian Rupee and benchmarked currencies of the world.

Considering the financial risks associated with mining revenue, the State Government has decided to put in place a “Budget Stabilisation Fund” which will act as a buffer fund to ensure financial stability during the period of negative shocks from the mining sector.

It is anticipated that there may be annual variation of up to a maximum 20 per cent in revenue realisation from the mining sector. Total mining revenue could be either 20 per cent more or less than the budget estimate. Therefore, about 20 per cent of the total mining revenue i.e., around Rs Rs. 9000 crore has been kept as strategic reserve to offset any decline in mining revenue in a financial year and maintain the budget size.