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Tough Time For Budget Making

Bhubaneswar : As the 2020-21 financial year fast comes to an end, everybody in Odisha is eager about the next annual budget, especially so when financial uncertainty looms large. Questions linger about its size, whether the government will be forced to reduce the volume of the budget, new taxations and its focus and many more.

The pandemic, which affected a part of the 2019-20 fiscal, has left the 2020-21 financial scene in a tailspin, and nobody is sure how long the situation will prevail. Amid such confusion, questions and apprehensions the state is preparing the 2021-22 budget.

The global pandemic COVID-19 is a crisis of unprecedented nature and it has upended the lives and livelihoods of the entire humanity. With the nationwide lockdown from 22 March, 2020 economic activities across the country including Odisha came to a standstill. However, gradual opening of activities was allowed in subsequent phases of lockdown.

Although many sectors have now been re-opened, it will take some more time for the normalcy to be restored. According to IMF’s World Economic Outlook (2020), global GDP is expected to decline by 3 percent in 2020, with a slow recovery in 2021. In the case of India, the economy could shrink by about 9 percent in 2020-21.

Odisha’s economy is also likely to contract in FY 2020-21 due to the impact of the pandemic. Though most of the sectors have been reopened and the State economy is showing signs of recovery, it may go haywire with a second wave. However, possibility of a second wave will diminish with the roll out of the ambitious vaccination programme.

“The State is particularly susceptible to changes in two commodity prices: iron ore (the major export) and oil (major import). Hence, the pace of recovery in the economy in FY 2021-22 would depend on these factors,” an expert in the state economy opined.

However, the experts say that the state government which presented a budget worth Rs 1.5 lakh crore in February, 2020, may not afford to lower the budget size in the 2021-22 fiscal as it may send a negative signal across the sectors of economy. The Rs 1.5 lakh crore budget in 2020-21 had a capital outlay of Rs 26,513 crore. Last year, the budget was prepared in a pre-COVID situation and GSDP growth assumed to continue at a rate surpassing National GDP growth. The transformational budget had laid down plans for building a “New Odisha”.

However, under the changed situation, the state needs to have a separate focus as life and livelihood are priorities for any government. The focus will certainly be on employment generation, particularly for women in order to empower them, as such empowerment will help curb crimes against women and girl children. Therefore, empowerment of women is likely to be the major focus of the state government in the ensuing budget.

A livelihood package for the women self-help groups has been announced by the government. The state government has urged the banks to give credit of about Rs 4 lakh to each WSHG in order to make them financially independent. It may be mentioned that the WSHGs in Kerala get Rs 6 lakh, as against a paltry Rs 1.6 lakh in Odisha. Therefore, the state government may make special provisions for women empowerment by making them economically independent.

This will also help the state to generate income among the women, who are a solid vote bank for the BJD government. Chief Minister Naveen Patnaik has time and again thanked the women voters for supporting the BJD for which he could become the Chief Minister for five consecutive times. When opposition BJP has been eyeing on the BJD’s women vote bank, Naveen will certainly like to counter the move by making provision for WSHGs in the budget.

Apart from women empowerment, the next budget would strive to boost the MSME sector. Whatever amount the state has sanctioned as a pandemic package to the MSME, may be further raised through budgetary provisions.

This apart, fisheries and allied sectors are also identified to be the mainstay areas to provide employment to the people, particularly the educated youths. And this sector requires a lot of funding. Since the banks are reluctant to give credit and the central funds flow decreasing, the state government needs to make its own arrangement to bring the economy back to the rail.

Therefore, what should be the means to get funds for the purpose? Will the state go for further market borrowing? Though the state’s fiscal situation and debt burden remained comparatively better than other states, it cannot take risk keeping the future in view. As such, the state’s debt burden will cross Rs 1 lakh crore by end of 2020-21 fiscal. There is a ray of hope in the mining sector amidst the dark economic scenario. The Chief Minister recently appreciated the Union Cabinet’s decision for further reforms in the mineral sector which will encourage private investment and also facilitate auction of more mineral resources in the state. If things move on expected lines, the mining and mineral sector could come as a major help for the state when the central government and the banks are not forthcoming.

Everybody knows, Odisha is vulnerable to frequent natural calamities especially tropical cyclones. Over the years, the state has been managing some of the identified fiscal risks like natural calamities, public debt and government guarantees, in isolation. Since budget formulation is now based on the micro-economic outlook, there is a need to counter the deficit bias and maintain a sustainable fiscal position. It should also consider implications of key public policy decisions and factor in the concurrent risks to public finances. Thus, maintenance of fiscal sustainability is the primary concern of the budget formulation process.

The sustainability indicators mainly give an idea about the adequacy of current revenues to meet revenue expenditure obligations, application of borrowed funds for capital formation, liquidity in the system to discharge committed liabilities and development expenditure and a sustainable debt stock and debt servicing liability.

The current economic slowdown has brought down the level of revenue surplus. Thus, in the short and medium term the focus would be on arresting the decline in the level of revenue surplus through appropriate revenue augmentation and revenue expenditure rationalization measures. Integrating all these factors in the next Annual Budget is a challenging task, feel experts.