As the 2020-21 financial year is fast coming to an end, everybody in Odisha is eager about the next State Annual Budget, especially so when financial uncertainty looms large.
Questions linger about its size, whether the Government would be forced to reduce the volume of the Budget, new taxations and its focus and many more. (Notably, the State Assembly’s Budget Session is likely to commence on February 15 and a Budget of Rs 1.7-lakh crore outlay is expected to be tabled on February 20.)
The Covid-19 pandemic, which affected a part of the 2019-20 fiscal, has left the 2020-21 financial scenario in a tailspin; and nobody is sure how long the situation would prevail. Amid such confusion, questions and apprehensions, the State is preparing the 2021-22 Budget. With the nationwide lockdown from March 22, 2020, the economic activities across the country, including Odisha, came to a standstill. However, gradual reopening of activities was allowed in subsequent phases of the lockdown. Although many sectors have now been reopened, it would take some more time for the normalcy to be restored. According to the IMF’s World Economic Outlook (2020), the global GDP is expected to have a slow recovery in 2021.
In the case of India, the economy could shrink by about 9% in 2020-21. Odisha’s economy is also likely to contract in FY 2020-21 due to the impact of the pandemic. Though most of the sectors have been reopened and the State economy is showing signs of recovery, it may go haywire with a possibility of a second wave of the pandemic. “The State is particularly susceptible to changes in two commodity prices: iron ore (the major export) and oil (major import). Hence, the pace of recovery in the economy in 2021-22 would depend on these factors,” an expert in the State economy opined. However, experts say the State Government, which presented a budget worth Rs 1.5 lakh crore in February 2020, may not afford to lower the budget size in the 2021-22 fiscal as it may send a negative signal across all sectors of economy.
The 2020-21 Budget had a capital outlay of Rs 26,513 crore. The Budget was prepared in a pre-Covid situation and the GSDP growth assumed to continue at a rate surpassing the national GDP growth. The transformational Budget had laid down plans for building a “New Odisha”. But in the changed situation, the State needs a separate focus as life and livelihood are priorities for any Government. The focus would certainly be on employment generation, particularly for women, in order to empower them as such empowerment would help curb crimes against women and girl children.
Therefore, empowerment of women is likely to be the major focus in the new Budget. A livelihood package for the Women Self-Help Groups (WSHGs) has been announced by the Government, which has urged the banks to give credit of about Rs 4 lakh to each WSHG to make them financially-independent. Notably,a WSHGs in Kerala gets Rs 6 lakh as against a paltry Rs 1.6 lakh in Odisha. Therefore, the Odisha Government may make special provisions for women empowerment. This would also help the State generate income among the women, who are a solid vote bank for the BJD Government. Chief Minister Naveen Patnaik has time and again thanked the women voters for supporting the BJD, for which he could become the Chief Minister for five consecutive times.
When opposition BJP has been eyeing the BJD’s women vote bank, Patnaik would certainly like to counter the move by making provision for the WSHGs in the Budget. Apart from women empowerment, the new Budget would strive to boost the MSME sector. Whatever amount the State has sanctioned as a pandemic package to the MSMEs may be further raised through budgetary provisions. This apart, fisheries and allied sectors are also identified to be the prime areas to provide employment to the people, particularly educated youths. And this sector requires a lot of funding. Since the banks are reluctant to give credit and the Central funds flow decreasing, the State needs to make its own arrangement to bring the economy back to the rail.
Therefore, what should be the means to get funds for the purpose? Will the State go for further market borrowing? Though Odisha’s fiscal situation and debt burden remained comparatively better than other States, it cannot take risk keeping the future in view.
As such, the State’s debt burden will cross Rs 1 lakh crore by the end of 2020-21 fiscal. There is a ray of hope in the mining sector amidst the dark economic scenario. The Chief Minister recently appreciated the Union Cabinet’s decision for further reforms in the mineral sector which would encourage private investment and also facilitate auction of more mineral resources in the State. If things move on the expected lines, the mining and mineral sector could come as a major help for the State when the Central Government and the banks are not forthcoming with substantial support.
Everybody knows Odisha is vulnerable to frequent natural calamities, especially tropical cyclones. Over the years, the State itself has been managing some of the identified fiscal risks like natural calamities, public debt and Government guarantees.
Since Budget formulation is now based on the microeconomic outlook, there is a need to counter the deficit bias and maintain a sustainable fiscal position. It should also consider implications of key public policy decisions and the factor in the concurrent risks to public finances. Thus, maintenance of fiscal sustainability is the primary concern of the Budget formulation process.
The sustainability indicators mainly give an idea about the adequacy of current revenues to meet revenue expenditure obligations, application of borrowed funds for capital formation, liquidity in the system to discharge committed liabilities and development expenditure and a sustainable debt stock and debt-servicing liability.
The current economic slowdown has brought down the level of revenue surplus. Thus, in the short and medium terms, the focus would be on arresting the decline in the level of revenue surplus through appropriate revenue augmentation and revenue expenditure rationalisation measures. Integrating all these factors in the next Annual Budget is a challenging task, feel experts.