Bhubaneswar: The good news is that Odisha’s economy is projected to register higher growth of about 8% in 2022-23 as well as in 2023-24. One of the high growth states in the country has outperformed the other states and even the nation. While the global economy is projected to grow 3.2% this year, the Reserve Bank of India has projected India’s growth at around 7.2%. However, Odisha has been eyeing for a bigger growth rate in the coming years.
The state’s economy has seen a rebound in the year 2021-22 despite the second wave of Covid-19, and real GSDP has grown at a rate of 10.1% as per advanced estimate which is much higher than the national growth rate of 8.8 %. Capital outlay to GSDP ratio has increased from 3.8% in 2019-20 to 4% in 2022-23.
Capital outlay has been in tandem with the developmental needs of the state. About 63% of total outlay has been allocated for developmental sectors such as major and medium irrigation, flood control, transport infrastructure, etc.
However, the economic analysts are skeptical about the projected growth as a number of issues concerning the states in general and specific issues pertaining to the economy and finances of the state remain unresolved. Unless the Centre revisits its Centre-State policy, it will be a daunting task for the state administration to maintain its high growth trajectory.
In recent years Odisha’s Own Tax Revenue (OTR) as a percentage of Gross State Domestic Product (GSDP) has declined, especially since the introduction of the Goods and Services Tax (GST). The period of GST compensation has ended on 30 June, 2022. The decisions of the Government of India to reduce the tax rates of the Union Taxes and contraction of economy during 2020-21 have resulted in contraction of the divisible pool, resulting in reduction in the devolution of Central Share Tax to the State to the tune of 2.18% of GSDP from 2015-16 to 2020-21.
Now the state has little space to enhance its tax revenue in order to fill the resources gap due to cessation of GST compensation to the states from July 2022 onwards. It has been estimated that the shortfall in own revenue for Odisha will be around Rs.65,000 crore in next Five Years. If central policy is not revised Odisha will not be able to maintain the level of spending in priority sectors, analysts feel.
About the Covid-19 period, Prime Minister Narendra Modi is on record expressing that the collective efforts of all the states in the spirit of “Cooperative Federalism” were the force that helped India to emerge from the pandemic. Both the state and the centre worked in tandem during the pandemic period.
According to economic advisors in planning, designing and finalizing the criteria for allocation for Centrally Sponsored Schemes (CSS) the states should have a greater say. And most importantly, the Union Government is needed to provide advance indication about the allocation, so that the state may prepare the Annual Budget on a realistic basis.
Sadly, this exercise is absent and there is irregular flow of funds in some schemes and in some others the actual central assistance is substantially lower than approved for the financial year. The state is asked to bear the balance on a 100% basis. Of late this is happening and Odisha is facing a tough time, officials claim. So, in practice, the state has to bear much higher than its 40 % share.
Economists advise that the Government of India needs to evolve a single window system for communication of annual allocation and sharing pattern of CSS to the states and ensuring release of central assistance as per commitment.
One of the major concerns of the state administration is that the geo-climatic conditions of Odisha make it vulnerable to multiple and frequent natural disasters. During 1900 to 2022, the state has experienced disasters like flood, cyclone, and drought every year. These natural calamities pose a serious challenge to the economy of the State.
Odisha has recently requested that “Natural Calamity” should be made one of the criteria for according “Special Category Status” to Odisha, so that it will avail facilities similar to North Eastern and Himalayan states.
Many states are facing major natural calamities and those vulnerable to such disasters are needed to be declared as “Special Focus State” and granted benefit of SPS for a specific period. This will help reconstruction of infrastructure and restoration of livelihood.
Article 270 of the Constitution of India provides for sharing of proceeds of All Union Taxes between the Union and States. However, the cess and surcharge levied by the Government of India as per Article 271 of the Constitution of India, which do not form a part of ‘Divisible Pool’.
The share of cess and surcharge in Gross Tax Revenue of the Union Government increased from 7.5% on 2000-01 to around 20% in 2022-23. This has resulted in reduction of the devolution of Central share from 7.18% of States’ GSDP in 2015-16 to 5.07% during 2020-21 and 5.98% during 2021-22.
This policy needs a revisit and at least flagship centrally sponsored Schemes like PMGSY, PMKSY, JJM need 100% funding, so that the state will be in a comfortable funding scenario to implement these major programs.
Another major concern area is Capital Expenditure (CAPEX). One of the most important initiatives taken by the Union Government is to boost CAPEX in states with the introduction of the Scheme of Financial Assistance to States for Capital Investment from 2020-21.
Financial analysts opine that the CAPEX guidelines are complicated and laced with many conditions, for which large chunks of funds allocated in CAPEX are remaining unutilized. Simplification of procedures is the need of the hour and once simplified, both the state and centre will reap benefits. In fact, complicated guidelines have defeated the objective of the grand scheme to enhance growth through CAPEX.
These are some of the major economic issues ailing one of the high growth states, which is trying hard to propel growth through the Agriculture, Mining, Service and other sectors. However, unless the Union Government revisits its policies, the momentum of growth will face hurdles.