The Odisha interim Budget 2024-25 presented in the State Assembly on Thursday aims to strengthen the building blocks through both urban and rural infrastructures. The budget looks to aid growth, provide long-term financing and strengthen the supply chain in the state. Well-targeted and well-timed capital expenditure fosters long-term and sustainable inclusive growth by tapping the productive capacity of an economy. Higher Capital Expenditure (CAPEX) is a precondition to sustain the growth momentum over the long run. The state's comprehensive infrastructure approach positions it as a beacon of resilience and economic vitality.
Odisha continues to shine as one of the fastest-growing States in India, expecting its real GDP growth to remain robust, projected to be around 8 percent in the fiscal year 2024-25. Infrastructure development increases short-term and long-term demand and supply along with the potential rate of GDP growth. Infrastructure expansion also absorbs labour, resulting in increased employment and revenue generation in the economy as well as increased domestic demand. The public infrastructure is a pivotal catalyst for driving inclusive economic growth and achieving various development objectives, including reducing social inequalities, poverty, and health hazards.
The State’s economy has grown faster than the national economy from 2012-13 to 2022-23. Public investment has increased at an even faster rate. Odisha is among the leading states (excluding north-eastern states) in public spending normalized by GSDP. Odisha has not just taken the leading role in creating demand in the economy but also invested heavily in building capacity for medium-term growth. The State is the highest spender on physical asset creation (measured by capital outlay to GSDP).
Despite being the leading spender overall as well as building capacity to sustain growth through capital outlay, Odisha has managed its finances prudently. It has consistently reported a revenue surplus for several years. There has been a surplus revenue balance during the period 2015-16 to 2024-25(BE), Revenue Surplus and net borrowings have mainly funded the Capital Outlay which adds to the growth potential of the state. As a result, the Capital Outlay as a percentage of GDP has remained at the level of 4.8 percent of GSDP during the period 2015-16 to 2024-25(BE). The capital outlay has been growing at 15 percent since 2015-16. The budgeted capital outlay is estimated at a peak of 6.82 percent of GSDP. The budgeted per capita outlay is calculated at Rs 13,180 in 2024-25 as compared to Rs 4,071 in 2015-16 showing an increase of 3x. Odisha is among the leading states (excluding north-eastern States) in public spending in India.The State has turned towards increased capital formation through investing heavily in building capacity for medium-term growth as well as crowding in private investments. Odisha’s capital outlay has been witnessing high growth with a consistent focus on the improvement of the social and economic infrastructure of the State. The capital outlay in 2024-25(BE) is 3.7x as compared to 2015-16.
High spending through capital outlay in Odisha is targeted and driven by the developmental needs of the State. However, on an average, economic services have grown at 15.8 per cent annually between 2012-13 and 2021-22, while social services grew at 28 per cent, reflecting increased attention of the State towards social sector development. Pursuing targeted capex during the last 10 years, an average 63 per cent of total outlay has been allocated for major and medium irrigation, flood control, and transport infrastructure of the state. Social development of the State through significant spending on health, education, welfare of SC/STs has also been a priority in capital outlay. Bulk of social services capital outlay in 2024-25 (B.E) is allocated on water supply & sanitation, medical and public health and education.
Studies by the Reserve Bank of India and the National Institute of Public Finance and Policy have estimated the multiplier of the State to be between 2.5-3.5x.Traditionally, infrastructure has been linked to physical assets like roads, bridges, electricity, railways, and airports. In Odisha, the development narrative has been intricately woven with a strong emphasis on physical, social and digital infrastructures. This comprehensive approach aims to connect markets, facilitate production and trade, and create economic opportunities in education, employment, and income.
Odisha’s growth success story is a story of capex. The State has initially focused on managing the expenditure side. Expenditure control allowed headroom for more fiscal space. Revenue buoyancy through non-tax sources has helped the State coffers with adequate firepower to fuel growth through capex in energy, roads/bridges, water, rail, ports/airports, etc.
The Ama Odisha Nabin Odisha (AONO) scheme is launched to develop the digital infrastructure in rural Odisha of the state. AONO will bring transformation to rural Odisha.The State has decided to transform 147 health centres with high caseloads into Ama Hospital, with objective to expand to all district headquarters and sub-divisional hospitals and community and primary health centres in the next four years.
This growth path shows the resilience as well as the commitment of the State and its leadership.
(Dr Acharya is Professor in School of Economics, University of Hyderabad)
