Over the next three years, the State plans to maintain a fiscal deficit consistent with the requirement of the Odisha Fiscal Responsibility and Budget Management (FRBM) legislation. The overview of Fiscal Strategy for the 2022-23 Budget reveals that such a consistent approach will produce a sustainable Medium Term Debt Stock trajectory.
Finance Principal Secretary Vishal Dev hopes that the State’s overall fiscal outlook will remain stable over the Medium Term. During a discussion on strategising budget formulation with senior officials, it came to the fore that the Debt Stock is expected to remain well within the FRBM-prescribed limit of 25% of GSDP in Medium Term. However, if there is need for additional fiscal stimulus in 2022-23 to support economy, the State can use the fiscal space generated in financial year 2021-22, Dev said, adding that this has been allowed to carry forward to the next year.
The FRBM Act, 2005 mandates to generate a revenue balance and contain fiscal deficit within 3.5% of GSDP; and the State can avail additional borrowing on account of unused fiscal deficit during previous years.
A cap on borrowing was one of the major areas of concern for the State when the Debt Stock was at an unsustainable level. However, with an improved revenue performance, expenditure rationalisation and debt restructuring, the State’s dependence on borrowing has been reduced substantially.
The Debt Stock and interest payment liability are near much below the threshold of sustainable parameters, officials say.
Budget formulation is now based on the micro-economic outlook and fiscal framework envisaged in the fiscal responsibility legislation with an objective to counter deficit bias and maintain sustainable fiscal position. It also takes into account the implications of key public policy decisions and factors in the risks to public finances.
Thus, maintenance of fiscal sustainability is the primary concern of the Budget formulation process. The current economic slowdown has brought down the level of revenue surplus. However, the State’s focus would be on arresting the decline in the level of revenue surplus through appropriate revenue augmentation and revenue expenditure rationalisation measures, said a senior official.
Earlier, because of resource constraints, it was not possible to provide adequate funds for Capital Expenditure. With the improved fiscal space, there has been a substantial increase in capital spending.
The Capital Outlay, which was only Rs 853 crore in 2003-04, has increased to about Rs 26,000 crore in 2021-22. The Capital Outlay as percentage to the GSDP has increased from 1.3% in 2003-04 to about 4% in 2021-22.
The share of Revenue Expenditure has decreased from about 92% in 2000-01 to about 84% in 2021-22, The average revenue expenditure has been contained within 12% during 2000-2020 in spite of the impact of the revision of pay and pension recommendations of the Sixth and Seventh Pay Commissions.
On the other side, the capital spending has shown an average growth of about 15% during the same period.