The 13th Finance Commission, now on a visit to Orissa, has suggested the Orissa government to increase collection of own tax revenue, augment capital expenditure and explore the public-private-partnership (PPP) mode to address the problem of large infrastructure deficit in the state.
Participating in the interactive session with the state government today, Dr.Vijay Kelkar, chairman, 13th Finance Commission said, Orissa has one of the lowest ratios of own revenues to Gross State Domestic Product (GSDP), despite improvement over past five years. Since there is ample scope in improving the state’s own revenue, the state should increase its revenue raising capacity.
“Given the huge developmental needs of the state, this will be absolutely necessary even with the most liberal vertical and horizontal devolution of the divisible pool that can be feasibly contemplated”, Kelkar said.
Stating that the Central transfers have been the main driver of high revenue -GSDP ratio of the state, he said, Orissa has the third highest ratio of Central transfers to total revenue receipts among the general category states. It is the only general category state to receive non-plan revenue deficit grant from all Finance Commissions to date.
In the public expenditure front also, the growth rate of revenue expenditure in Orissa between 2001 and 2007 was 10.16 percent compared to 10.26 percent for general category states. The expenditure of social sector as proportion of total revenue expenditure has remained almost stagnant. Similarly, the level of state’s capital expenditure has been low despite the fiscal surplus achieved in 2006-07 and 2007-08. In this context, he urged the state government to further improve the capital expenditure.
“It is intriguing that though the state had fiscal surplus for last two years, the level of capital expenditure, as proportion of GSDP is low”, Kelkar pointed out.
Kelkar, however, assured to consider carefully the proposals of the state government like raising the share of states in the divisible pool of Central taxes, recommending a floor level devolution, total transfer of export duty on iron ore and chrome ore to the mineral bearing states and working out a formula for horizontal devolution.
The proposal of the state to increase the share of states in the divisible pool of Central taxes and the suggestion to recommend a floor level devolution will be examined on an empirical basis, he added. Similarly, the state’s suggestion on total transfer of the export duty levied on iron ore and chrome ore and adding surcharge beyond 1 year to the divisible pool will also be given careful examination. The proposal regarding the formula for horizontal devolution and factors to be taken into account in assessing the fiscal position of states will be important inputs for the work.
Kelkar said, better expenditure measures in some states contributed to the achievement of FRBM targets and Orissa’s performance in this area has been commendable.
However, the Commission, wanted to know about the extent of acceptance and operationalistion of the recommendations of the Regional Imbalance Enquiry Commission (RIEC) which submitted its report last year.
Since the pre-devolution non-plan revenue deficit estimates submitted to the Planning Commission is Rs 30,932 crore lower than the figures given to the 13th Finance Commission, Kelkar requested revision of these figures. Orissa came in praise for successful implementation of value added tax (VAT), administrative reforms to improve service delivery and devolution of 21 functions to the Panchayatiraj institutions.
