Bhubaneswar: It is said that Mahaprabhu Jagannath runs this Utkal state, not the ministers and the bureaucrats. The state that was struggling to pay salaries to its employees in 2000, is now flush with funds. And now our political leaders and policymakers take credit as the state overcomes major financial hurdles. However, all this is due to the ‘money rain’ Odisha received during FY2021-22 with massive revenue of Rs 48,642 crore from the mining sector alone. This was beyond the imagination of our financial experts or economists engaged in the budget making process. Interestingly, our experts had set a target of mining revenue collection to the tune of Rs 13,700 crore only for the 2021-22 fiscal, which is less than actual mineral revenue of Rs 13,792 crore, earned in the previous year.
This high earning from the mining sector is being celebrated across the state. Odisha bagged first prize in Category-I & second prize in Category-II under Rastriya Khanij Vikas Puraskar of the Ministry of Mines. It is indeed good news for our mineral rich state which despite its huge mineral treasure remained neglected. Thanks to the officials, laborers, workers and staff engaged in the mines sector the state is reaping benefits.
However, it is surprising that our financial experts could not anticipate that Odisha is going to make such a huge gain in a year. When the so-called experts fail to anticipate gains to be made, how can they fathom the losses in store for the future? Unless we have better planning, calculation and estimation, the state may earn a benefit “by chance”, but cannot sustain the loss in store. The job of the expert is to see things which are not visible or anticipated by the common man.
This time for the 2022-23 fiscal, the government has set the target of Rs 43,444 crore revenue collections from the mining sector. This is Rs 5,000 crore less than the revenue generated in the 2021-22. This is done keeping in view the volatility in mining revenue generation. Mining Revenue constitutes about 6 per cent of the GSDP, 26 per cent of total revenue receipt, 90 per cent of the state’s own tax and 46 per cent of state’s own revenue. If there is a fall in mining revenue, it will have a direct impact on the state’s annual budget. Since mining revenue is sensitive to demand and price of metal in the national and international market, there is risk associated with the mining revenue.
The state’s mining revenue is likely to suffer as the centre has raised duty on export of minerals. Large quantities of iron ores are exported from Odisha.
Natural disasters, volatile nature of mining revenue, GST, Odisha’s share in central taxes and electricity sector are the major risks for the economy. During the 2021-22 fiscal, the mining revenue produced a positive shock. Since volatility in metal price directly affects the mining revenue, the risk associated on this account will substantially increase in future due to higher exposure.
The state was assured of compensation for the loss incurred on account of GST implementation till June, 2022. But due to pandemic, the cess collection in the GST Compensation Fund has been low. Now there is no GST compensation regime, so there will be a fiscal shock to the extent of about 1 percent of the GSDP for the state, which could be around Rs 6,000 crore. Therefore, one has to be very cautious while dealing with this aspect of the economy.
There is also a possibility of uncertainty around share in central taxes. A fall in economic activity reduces national tax collection which results in lower central transfer share to state. The 15th Finance Commission has recommended reduction in state share from earlier 42 percent to 41 percent owing to bifurcation of the Jammu & Kashmir into two union territories. The share of Odisha has reduced from 4.64 per cent to 4.53 per cent for the 15th Finance Commission award period which is from 2021-22 to 2025-26. The FC had recommended a share of Odisha for 2020-21, pandemic year, at 4.63 per cent as per the interim report. However, the actual release was much lower. The difference was almost 30 per cent. However, there was a higher release in 2021-22 due to higher GST collection.
All of us know that Odisha is prone to frequent natural calamities like cyclones and floods. Between 2014 and 2021, the state has sustained a direct loss of more than Rs 24,000 crore. Keeping in view the fast climate change, such calamities will certainly make regular visits to the state and one must remain prepared for this also.
The state public sector undertakings are also a major worry for the state as Odisha has invested more than Rs.21,000 crore in them. The SPSUs have incurred a loan of more than Rs 6,000 crore where the government is a guarantor. Though the PSUs will pay back the debts, the state has moral responsibility to the lenders. Therefore, efforts must be made to revive the loss making PSUs, not just by pumping more money, but also by putting in place a robust management. While private sector undertakings make wonders, why not the state PSUs? It is high time to fix accountability on the PSU management.
The total outstanding public debt of Odisha in 2021-22 stands at Rs 1,00,813 crore which is 15.8 per cent of the GSDP. However, the composition of debt stock in the state has also witnessed a transition from some of the high cost borrowing sources such as National Small Saving Fund (NSSF) to low cost borrowing sources. The state has been taking short term loans at cheaper interest rates from funds set up for dedicated purposes like OMBADC and CAMPA. The state can borrow up to 60 percent of surplus funds available in these funds.
Therefore, it is high time that our experts and policy makers should do their homework and reorient their vision. They should make proper planning and estimation while anticipating risks and planning for their mitigation. Utmost care must be taken for the proper management of the state economy with a fail-safe framework for risk planning.