Dr Moa Jamir
The 15th Finance Commission (XVFC) Report, which was tabled in the Parliament by the Union Finance Minister on February 1, had some sobering observations for Nagaland warranting crucial actions from the State Government.
The observations were many, but we concentrate on a few pertinent parameters, which have repercussions for current development and future progress of the State. It demands, at the outset, investigating into some important aspects of the State’s financial and economic status.
Chief among those is the burgeoning budget deficit, estimated to rise from Rs 1,611.98 crore in 2019-20 to Rs 2358.81 crore 2020-21. Deficits, to simplify, are indicators of outstanding debts.
“Nagaland has the second highest debt in the country. Though its Debt/GSDP has reduced from 55.5% in 2011–12 to 42.7% in 2018-19, it is still much higher than the NEHS (North East and Himalayan States) average of 29.61%,” the Commission observed. Accordingly, Nagaland’s Fiscal Deficit stood at 4% of the Gross State Domestic Product (GSDP) as against 3.4% in NEHS.
What are the consequences of high debt and Fiscal Deficit? Ideally, fiscal instruments are deployed by a government in direct productive investment. However, in Nagaland, it seems otherwise.
While committed expenditure (such as interest payments, salaries and pensions) of Nagaland was 67.3% of its Total Revenue Expenditure in 2018–19 (all States average at 50.6%), capital expenditure in Nagaland declined between 2011-12 and 2018-19 both as a percentage of GSDP (from 10.3% to 5.9%) and total expenditure (20.4% to 12.8%), the Commission stated.
Capital expenditure, among others, represents the money spent by the government on creation and maintenance of infrastructure and other assets as well as investments that gives profits or dividend in future. A fall in capital expenditure signifies possible adverse impact on present infrastructure, and future economic growth and opportunities.
Nagaland earning the distinction of being the State with the highest dependence on Union transfers at 90.4% of GSDP is another outcome. It is also reflected by the State having the lowest expenditure on health as a percentage of total expenditure at 5% of GSDP in 2018-19.
The growing incidence of poverty in Nagaland which, as per the Commission’s analysis, increased from 9% in 2004–05 to 18.88% in 2011–12, despite reporting decent economic growth in the last few years, is another consequence.
It is also generating possible regional inequality and uneven development. Of the 11 districts (then) of Nagaland, the eastern districts—Mon, Tuensang, Longleng, and Kiphire, covering 36% of the State area and home to 28% of its population—have remained “relatively backward,” the Commission noted. It too failed to recommend any State Specific Grants for Eastern Nagaland, though recommending a more focused approach to improve the physical and digital connectivity and social infrastructure in the region.
On Fiscal Deficit, the Commission advocated for consolidating debt in line the recommendations of XVFC and the Fiscal Responsibility and Budget Management Act (FRBM Act), 2003, requiring governments to limit the deficit and debts to a certain percentage of GSDP. To recollect, the statements under the Nagaland FRBM Act, 2005 laid down during State’s Budget 2020-21, noted that the State shall, “continue to strive to contain the Fiscal Deficit at 3%,” while the XIIFC recommended outstanding debt as a percentage of GSDP to be contained at 52.3% by 2014-15. While 3% limit is not maintained, the XIIFC’s suggestion is no longer tenable. The State should take concrete steps to cut outstanding debt.
The Commission also called for an urgent need for steps to reduce the burden of salaries to free up resources for development expenditure in Nagaland and widening, “tax base and tighten its tax administration to improve its own revenues.” The question is how; necessitating changes in both policy and implementation.
Most importantly, benefits of economic growth should trickle down to all sections of society - based on genuine developmental imperatives, not on political exigencies. Is the State Government listening and ready to make amends?
Comments can be sent to jamir.moa@gmail.com
