Nagaland collects lowest own revenue in India

Source: ‘State of State Finances,’ PRS Legislative Research

Source: ‘State of State Finances,’ PRS Legislative Research

Grants-in-aid, devolution form the bulk of NE, Nagaland revenue receipts

Morung Express News 
Dimapur | November 14

Nagaland has the lowest own revenue among the States and Union Territories (UTs) in India, highlighted a report assessing the trends of state finances in India.

According to the 'State of State Finances' report released by the PRS Legislative Research last week, Nagaland’s own revenue, comprising 'Own Tax' and 'Own Non-tax' revenue, was just 12% of the total budget estimates for 2023-24. 

Revenue receipts of states comprised of (i) own revenue, and (ii) transfers from the union government in the form of devolution and grants-in-aid. 

Own revenue includes revenue earned by state governments from tax and non-tax sources, the report said.

Nagaland’s 'Own-Tax' revenue was only 10% of the total revenue receipts, while 2% came from 'Own Non-tax' revenue. Accordingly, the State’s own revenue is estimated to be just 12% of the total revenue receipts in 2023-24.

While Mizoram has the lowest 'Own-Tax' revenue, with just 9% of the total revenue receipts, its 'Own Non-tax' revenue stood at 8%, taking the total to 17%. 

However, Nagaland was not alone, as most states in the North-East had limited own tax revenue. Arunachal Pradesh and Manipur were not far behind, with 13% of their total revenue receipts estimated to be own revenue. 

Assam had the highest own tax at 31% of the total budget estimates in 2023-24, followed by Meghalaya at 21% and Sikkim at 20% (See table).

In 2023-24, states on aggregate are estimated to raise 57% of their revenue receipts from own tax and non-tax sources, with an aggregate estimated own tax to GSDP ratio at 7%, the report said. 

The ratio indicates a state's potential to mobilize revenue from economic activity, and a higher own tax to GSDP ratio indicates a better ability to harvest taxes from economic activities in the state, it added.

Dependency on Central largesse

Meanwhile, with limited own revenue, all the NE States are dependent on devolution or a share from union taxes as recommended by the Finance Commission and grants-in-aid given by the union, including grants recommended by the Finance Commission, grants for centrally sponsored schemes, and other grants such as GST compensation grants. 

Out of the NE States, Arunachal Pradesh has the highest share of devolution at 69% of the total revenue receipts, followed by Mizoram at 44% and Sikkim at 42%. 

Nagaland’s share from devolution stood at 37% of the total revenue receipts.

With low own tax and devolution, Nagaland had to depend on Grants-in-aid from the Union Government, estimated to be 51% of the total revenue receipts in 2023-24, similar to Tripura.

However, Manipur has the highest Grants-in-aid receipts at 60% of the total revenue. 

Arunachal Pradesh and Sikkim had the lowest Grants-in-aid receipts at 18 and 28, respectively. 

As per the report, in 2023-24, 43% of the total revenue receipts of all states are estimated to come from the devolution of central taxes and grants from the union. 

The devolution given from union taxes is untied, and states can spend it as per their priorities, while Grants can be tied, such as those given for centrally sponsored schemes, or untied, such as revenue deficit grants, it said. 

The union government can impose conditions to determine which states are eligible to get tied grants and the manner in which such grants can be spent, it added.

Meanwhile, Nagaland's financial status may deteriorate further if more own tax revenue is not increased with the share from devolution estimated to gradually diminish from Rs 4447 crore in 2023-24 to Rs 4068 in 2024-25 and further to Rs 3647 crores in 2025-26. 

The total post-Devolution Revenue Deficit Grants recommended by the 15th Finance Commission for Nagaland from the financial year 2021-22 to 2025-26 is Rs 21,249 crore, highlighted in the report.