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Mainstream, VOL LX No 25, New Delhi, June 11, 2022

Towards Prudent Fiscal Management in Assam | Atul Sarma and Shyam Sunder

Saturday 11 June 2022

by Atul Sarma and Shyam Sunder *

Despite the state government’s claim on fast growth in recent years, Assam’s per capita income is just 65.9% of all States average per capita income, or 70.9% of Northeast hill states (NEHS) average income in 2018-19, not to speak of the highest income state or even amongst the top five highest income state. Even in 2021-22 the state’s per capita income stood at 70.1 % of the national average per capita income. Clearly, the fiscal policy and its management has a lot to do with boosting growth.

Analysing the Assam finances, the Fifteenth Finance Commission (FFC) (October 2020) made inter alia two notable observations:

“The State has very low per capita expenditure as compared to NEHS. This is in spite of having revenue surplus. The State needs to utilise its fiscal space to increase expenditure on economic and social services.”

“… the State has high committed expenditure as a proportion of GSDP. State Government needs to rationalise and restructure its expenditure. Measures should be taken to reduce burden of committed expenditure so that resources are freed up for development expenditure.”

Examining the analysis of the FFC, one can further add that even where Assam’s per capita expenditure is higher than the national average, the outcome is significantly lower. For example, while Assam spent ₹1360 per head on health services as compared to all states average of ₹1218 in FY 2019, the outcome in terms of infant mortality rate is 41 per 1000 live births as against 32 for India, or the percentage of Institutional Deliveries is 70.6 in Assam as compared to the national average of 78. Similarly, life expectancy which can be expected to be impacted by health expenditure is 66.2 years in Assam compared to 69.0 for India. Such under performance in outcomes reflect poor fiscal management.

High committed expenditure comprising salary and pension and interest as flagged by the FFC stood at 67% of the state’s total revenue expenditure as against all-states average of 50.6% in 2018-19. Budget 2022-23 announcement that one lakh vacant posts will be filled up during the financial year would further add to the committed expenditure of the government. What is worse, the largest segment of the new recruits would presumably be under classes 3 and 4, the employees under these two categories being the most predominant among the government employees. In fact, 27359 out of 84244 or 32.45% of the jobs already in recruitment process are for classes 3 and 4. Apart from its being in stark contrast to the much hyped dictum of minimum government, maximum governance, such recruitment is rather incongruent in the context of new age technology which has made it possible to use increasingly large IT and IT enabled services for improving governance. How far these new recruits would improve governance or public service delivery is anybody’s guess but they would surely add to the already high committed expenditure of the state.

High committed expenditure leaves less resources for development activities. Indeed, economic services that contribute to income growth claims just 12.8% while general services do 30.9% of the total (revenue plus capital) expenditure budgeted for 2022-23. What is more, capital expenditure which creates productive assets is only ₹ 11020 crore or 9.2% of the total (revenue plus capital) expenditure of ₹119551 crore while the borrowed fund (public debt) amounting to ₹ 19358 crore would finance 16.2% of the proposed government expenditure during the financial year 2023. This means that a significant portion of the borrowed fund would be deployed on services other than those that create productive asset. Prudent fiscal management requires that the borrowed fund be deployed to create productive assets that add to productivity growth of the economy which in turn generates income that could help paying off the borrowed fund. Otherwise, it would add to unsustainable debt burden.

Analysing social and human development related allocation and performance, the FFC has observed: “Assam ranks 23rd among all states in SDG (Sustainable Development Goals) ranking by NITI Aayog (2019); its human development indicators like IMR, proportion of literacy, institutional deliveries are worse than national average”. In fact, Assam ranked in the range of 9th to 36th among the 36 states and union territories in respect of 16 specific SDG goals. Only in one SDG goal, viz. sustainable consumption and production, its rank is below ten- in 2019-20. That prompted the FFC to suggest: “the State needs to focus on improving human development indicators”.

Budget 2022-23 rightly allocated highest chunk of its total expenditure (36.37%) on social services. However, social service expenditure also includes umpteen welfare schemes. While welfare schemes are unavoidable in a state with a large segment of vulnerable population, populist/frivolous schemes such as distribution of gold or scooters are avoidable. It will be worthwhile if the government put in place a social security mechanism such as universal basic income covering both rural and urban poor while dispensing with all various welfare schemes and freebies.

It goes to the credit of the Assam government that learning from the experience of Covid-19, the government has initiated steps to strengthen health services as also to produce medical and health personnel in the state. In fact, with a little more visionary efforts, the state could create a hub for health services catering to the entire NE states, given its centrality in location. Similarly, Assam could also create a hub for quality and diverse educational facilities as also facilities for skill generation with thrust on artificial intelligence, Robotic, fintech and other new age technologies.

With 86% of Assam’s population living in rural areas, rural development has not received as much attention as it deserves. Budget 2022-23 has allocated just 10.2% of its budgeted expenditure for rural development together with agriculture and allied services and irrigation and flood.

Floods not only cause a huge loss of lives, livelihood and assets, both public and private year after year but also undermines farmers’ incentives to invest. Despite floods or ‘Mission Brahmaputra’ being placed number one amongst the ten sankalpas in the Sankalpa Patra for Atma Nirbhar Assam, floods together with irrigation has claimed just 2.3 % of the budgeted expenditure for 2022-23. Clearly, given the colossal nature of the flood problem, the state government without the Central govt’s active help cannot effectively handle it. It is a pity that while the Central government has paid special attention on infrastructure development in recent years, flood has not received much attention even though flood elimination has the potential to add massive income by way of averting the losses it causes annually. After all losses averted are incomes and assets added.

Empowering panchayats could also boost rural development. The FFC has noted that only seven out of 29 functions have been devolved to PR. Similar is the position of fund and functionaries. With transfer of functions, functionaries and funds, PRI could contribute enormously to rural development.

To conclude, while a state economy benefits from the central projects and externally aided projects, the state government should set its goal and priorities after carefully appraising its resource potentials at one level and the economic and social challenges at the other and design fiscal policy accordingly.

(Authors: Atul Sarma (sarmaatul[at]yahoo.com) is Former Head and Professor of Economics, Indian Statistical Institute, Delhi Centre and Shyam Sunder (shyams.eco[at]gmail.com) is working with an Indian Corporate. Views are personal.)

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