Nagaland Chief Minister Neiphiu Rio presented a budget with an accumulated fiscal deficit of Rs 1,374 crore on Tuesday, while a deficit of Rs 40 crore was projected for the fiscal year 2023-24.
Understanding that fiscal deficit is the difference between what the government receives and what it spends, the Nagaland government is earning so less and spending so much. As a result, the government has borrowed to fund its excess expenditure over income.
Where does the Nagaland government get its money from?
According to Article 280 of the Indian Constitution, the President of India appoints the Finance Commission (FC), which divides the net proceeds of taxes between the centre and the states or union territories based on the FC’s recommendations.
In 2022, NPCC president K Therie informed the media that 42 percent of the total net proceeds are transferred to the states on the first day of each month from Nagpur.
According to the Congress President, in addition to normal FC awards, NE States receive funds from NEC as well as state share from each Central Development Department.
However, as of March 2022, the Nagaland Government’s total outstanding liabilities (debt) stood at Rs 15,620.8 crore, as told by Union Finance Minister Nirmala Sitharaman in the Lok Sabha in July 2022.
Apart from the awards from the centre and the FC, the state also earns from internal revenue collection.
Nagaland’s reliance on central aid
Nagaland Chief Minister Rio stated on Monday that Nagaland’s income accounts for only 12.36% of total revenue receipts, which is scarcely enough to pay salary expenses for two and a half months.
According to a Reserve Bank of India (RBI) publication, Nagaland State got 92.5% of its financial resources from the centre in 2015-16, the greatest financial assistance from the centre and earning the title of “neediest State.” According to the same report, the Nagaland government spent only 7.5% of its overall expenditure from its own funds in 2015-16.
In 2017, Prof Mithilesh Kumar Sinha, Finance Officer NU, Lumami, in an analytical study of Nagaland’s ‘sluggish revenue trend,’ pointed out that from 2004-05 to 2014-15, the State’s own revenues as a share of total revenue “have remained almost stagnant and flat.”
“The revenue was 8.24 per cent in 2004-05 that witnessed a slight increase to 8.62 per cent in 2014-15. This indicates a perceptible stagnation in the State’s ability to raise resources internally,” Sinha pointed out in his report.
“A stagnant trend in State’s own tax revenues and declining trend in non-tax revenues indicate a drying up of taxes or a narrowing tax base, a contraction of charged government services or a non-recovery of the economic cost of services. This is indicative of systemic weaknesses and a substandard resource mobilization within the State,” Sinha added.
According to a 2017 CAG report, the state is heavily reliant on tax revenue as its primary source of income, so revenue has remained relatively stable.
Nagaland attempts novel things
Nagaland has begun concentrating more on non-tax sectors such as agriculture and tourism since 2018, with Modi’s administration pushing the Act East Policy.
From the allotment of Rs 5,426 lakhs for agri and Rs 3,400 lakhs for rural development in FY 2023-24, which is similar to the budget allocations in 2022-23, it can be seen that the government has put a significant drive towards infrastructural development in Agri and its allied sector and rural development.
The budget also demonstrates a varied interest in tourism, with an allotment of Rs. 1,055 lakh, and this time the government has concentrated on the Department of Youth Resources and Sports allotted with Rs. 1,025 lakhs.
Although the outcomes of the budgets cannot be assessed at this time, the government over the past years has been known for pouring money into the target sector without properly analyzing and evaluating it, and then enforcing policies without adequate ground research.
An example of such an attempt would be the ‘tractor subsidy scheme’ which in return only irked a lot of farmers as they did not want those tractors while the ones who actually needed the tractors were deprived.
Moreover, a 2017 CAG report has also highlighted how the State revenue could be more if it was not plagued by factors like acute lack of transparency, evasion of tax, misappropriation of funds, absence of monitoring and internal control mechanism and lack of public spending efficiency with no budgetary management and control.
Therefore, even though the budget appears to be an echoing success because of big budget allocations on paper, unless the implementation is done effectively and the resources deployed are managed properly, the printed figures on the paper will remain just that.
Therefore, taking into account the rising number of youth unemployment, the lack of revenue generation by the state, the government, the civil servants, the authority in-charge of various departments together with the civil society and its various organizations must work hard in making sure that the implementation of the budget benefits the targeted sectors.
It is time for all stakeholders to realize that economic self-sufficiency is critical for a state’s development and growth and that an economy dependent on grants will lack incentive to create its own growth mechanisms.