FUNDS RECOMMENDED BY 12th FINANCE COMMISSION AND RELEASED BY GOVT. OF INDIA IN DIFFERENT YEARS (Rs. in Crores)
Released by Recommendation Released by Recommendation Released by Recommendation Recommendation Released Recommendation Released by Recommendation Released by SL PURPOSES / SCHEMES GOI by of TFC GOI of TFC GOI of TFC of TFC by GOI of TFC GOI of TFC GOI (31.12.07)
2005-06 2006-07 2007-08 2008-09 2009-10 2005-10
1 Non-plan Revenue Deficit Grant. 488.04 488.04 0.00 0.00* 0.00 0.00 0.00 0.00 0.00 0.00 488.04 488.04
2 Central Share of Calamity Relief 226.16 226.16 232.68 232.68 239.53 239.53 246.73 324.50 254.27 0.00 1199.37 1022.87
3 Top up Grant for Education Sector 53.49 53.46 58.57 58.57 64.13 64.13 70.22 35.11 76.89 0.00 323.30 211.27
4 Top up Grant for Health Sector 31.22 31.22 34.81 34.81 38.81 19.41 43.28 21.64 48.25 0.00 196.37 107.08
5 Maintenance of Roads & Bridges. 0.00 0.00 368.77 368.77 368.77 368.77 368.77 368.77 368.77 0.00 1475.08 1106.31
6 Maintenance of Public Buildings. 0.00 0.00 97.28 97.28 97.28 97.28 97.29 48.65 97.29 0.00 389.14 243.21
7 Maintenance of Forests. 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 0.00 75.00 60.00
8 Heritage Conservation 0.00 0.00 12.50 12.50 12.50 12.50 12.50 9.37 12.50 0.00 50.00 34.37
9 State Specific Need (a+b) 0.00 0.00 42.50 40.50 42.50 3.75 42.50 46.44 42.50 0.00 170.00 131.44
a) Chilika Lake 0.00 0.00 7.50 7.50 7.50 3.75 7.50 11.44 7.50 0.00 30.00 26.44
b)Sewerage System for Bhubaneswar 0.00 0.00 35.00 33.00 35.00 0.00 35.00 35.00 35.00 0.00 140.00 105.00
10 Grants for local bodies. (a+b) 181.40 181.40 181.40 171.00 181.40 80.30 181.40 181.40 181.40 0.00 907.00 725.60
a) Grants for Panchayati Raj 160.60 160.60 160.60 160.60 160.60 80.30 160.60 160.60 160.60 0.00 803.00 642.40 Institutions (PRIs)
b) Grants for Urban local bodies 20.80 20.80 20.80 10.40 20.80 0.00 20.80 20.80 20.80 0.00 104.00 83.20 (ULBs)
Total 995.31 995.28 1043.51 1031.11 1059.92 900.67 1077.69 1050.88 1096.87 0.00 5273.30 4130.19
11 Share in Central Taxes and Duties 4719.43 4876.75 5403.19 6220.42 6199.86 5258.50 7129.82 8279.96 8217.17 1264.18 31669.47 28487.81
GRAND TOTAL 5714.74 5872.03 6446.70 7251.53 7259.78 6159.17 8207.51 9330.84 9314.04 1264.18 36942.77 32618.00
* Besides, Rs. 58.66 Crore towards Central Share of CRF for 2007-08 and Rs. 25.00 Crore from NCCF has been received on 11.9.06 during 2006-07
336 Executive Summary of the Memorandum of Govt. of Orissa to 13th Finance Commission
Introduction:
(i) Centre-State financial relation in India is built upon the three pillars of expenditure assignment, revenue assignment and inter- Governmental transfers. The framework is provided in the Constitution as well as in conventions and practices. The Finance Commission is the constitutional body assigned with periodic assessment of the system in general and inter-governmental transfers in particular. (ii) In terms of the constitutional mandates Finance Commission can and should consider the requirements of the State in their totality and not confine their attention to only the non-plan revenue account of the State. (iii) The 13th Finance Commission begins its deliberations at a time when the immediate past and the immediate future are at odds. The healthy growth of the economy, higher Central tax devolutions and much-needed reforms had transformed the perpetually deficit- ridden finances of most of the States including Orissa into relatively comfortable situations, at least in meeting the committed revenue expenditures. (iv) The immediate future is not so positive – several factors like signs of slowing down of economy, rising prices, deferred expenditure liabilities, pay revision as per recommendations of 6th Central Pay Commission constitutes heavy strain on the State finances. (v) For the State the imperatives of development predict a serious shortage of resources. The State has been only recently experiencing some amount of industrialisation but the vast potential of agriculture in the State that is yet to be realized in full must be tapped to the maximum possible extent. The strategy to achieve this goal has to include large expenditure on both social and physical infrastructure as also catering to the more immediate requirements of the poor. (vi) Recent industrialization in the State so far has been largely confined to minerals and mineral-based industries. Exploitation of minerals per se may not help the State much because the royalties received are not enough to meet even the costs of appropriate corrective measures for pollution, loss of environment and ecological assets and displacement of people. (vii) In the scheme of public finances, the developmental imperatives would require higher capital expenditure and larger revenue expenditure. The expenditure assessments by the Finance Commission have to be based on some measurement of
Memorandum to 13th Finance Commission 337 expenditure needs rather than past trends as assigning future expenditure requirement based on data for a base year is particularly unsuitable in a developing State like Orissa. (viii) The primary objective of the Finance Commission ought to be equity. Predominance of the equity objective is implicit in the Indian constitutional provision as Article 275 of the Constitution states that grants are to be provided to “such States as Parliament may determine to be in need of assistance”. Obviously such assistance is not intended for all States indiscriminately. (ix) There has to be a balance between equity and efficiency so as to help the less developed States, keeping equity as the prime consideration. (x) Since many of the less developed States are ones with highest growth potential, greater allocation of resources to these areas would benefit the entire nation by maximising national growth and spreading out the benefits of high growth. (xi) The Constitution of India envisaged the Finance Commission to be the sole arbiter of Centre-State transfers. The role of plan transfers and the Central Plan/Centrally Sponsored schemes ensure that the Finance Commission can truly fulfil its constitutional responsibilities only if it fully takes into account other forms of intergovernmental transfers than those it recommends itself. Major items of expenditure of the Government of India have a distribution that favours the developed States to some extent (Central expenditures like its investments in public enterprises and railways, food & fertilizer and petroleum subsidies). Therefore, the degree of the equalisation that the Finance Commission desires to bring about has to be adjusted upwards in their recommendations to compensate for the net disequalising effect of Central interventions. (xii) By excluding the plan expenditure and the capital account, the Finance Commission implicitly assumes that all States can raise the necessary resources for these expenditures on their own as supplemented by plan and other grants. A more comprehensive method can be to first make the estimates of resource deficits both under non-plan and plan and then assess the amounts of plan (and other) grants and arrive at a figure of overall deficits to be tackled by the Commission. (xiii) When the growth of Central Tax revenue is less than anticipated, States like Orissa lose heavily on account of shortfall of developmental resources. To prevent this from happening again the Commission may recommend a floor level of devolution equal to 100% of the estimated tax devolution. The State Govt. has lost Rs.894.67 crore and Rs.3663.13 crore during 1995-2000 and 2000-05 on recommendations of the 10th and 11th Finance Commissions respectively in this score.
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(xiv) It is no coincidence that the most debt-stressed States in India are the least developed States. The basic theme running through the entire structure of fiscal federalism in India is the pre-devolution vertical imbalances, severe horizontal imbalances, lack of equalisation in the system as a whole and the consequent mismatch of developmental aspirations of the States with the resources at their command, magnified manifold in the case of less developed States like Orissa. This mismatch has been bridged with large doses of borrowings in the past. But recently because of unsustainable debt burden most of the States have tried to rein in their borrowings by cutting down expenditure. The rise in debt GSDP ratio of the States has slowed down by the high growth rates in the recent past, the debt swap and debt relief mechanism, the phasing out of Plan loans and the unbundling of Government bonds of different States by the Reserve Bank of India. (xv) However, the basic problem of unsustainable debt remains. With the abolition of plan loans and the Government bond market looking at the States’ income levels rather than the States’ finances, a fully market based solution of the debt issue is fraught with risk for the least developed States. In this situation the relevance of debt restructuring and write off remains.
Development Constraints
(i) Orissa traditionally one of the underdeveloped regions of India and with one of the highest poverty ratio in the Country has been developing at a faster rate than earlier. Given its geography – coastal State with extremely high level of mineral wealth – rapid growth rate should have been a basic characteristic with Orissa’s economy and polity. But this could not happen mostly because of the freight equalization policy that impacted adversely on the State during the last several decades. (ii) In the post liberalization scenario strong fiscal correction during the recent years has helped the State to be one of the fastest growing States of India. Yet the State is impeded by several problems like low human development index, lack of infrastructure, large ST & SC population, narrow revenue base etc. (iii) Percentage of population below poverty line in 2004-05 was the highest among all the States in the country, 46.4% against all India average of 27.5%. (iv) Agriculture in Orissa is characterised of low productivity on account of problematic soil, lack of assured irrigation, low seed replacement rate, low level of fertiliser consumption and low level of mechanisation etc. (v) The percentage of exploitation of irrigation potential in Orissa remain 38.90% compared to all India average of 83.64%.
Memorandum to 13th Finance Commission 339 (vi) The State has recorded forest area of 58136.9 sq. km, which constitutes 37.34% of the State’s geographical area but 31.06% of the State’s geographical area is under actual forest cover. The State has been witnessing rapid growth in mining and other industries and coal based power projects. This has put pressure on the States ecology and environment. The State is facing challenge of minimising the damaging effect arising out of such activities but funds are a constraint. (vii) The State is endowed with vast mineral deposits like Iron ore, Coal, Manganese ore, Bauxite, Chromite, Nickel, Copper, Graphite etc. Inspite of being a mineral rich State the exploitation does not match the potential, because of some ill conceived policies of the past (freight equalisation etc.). Most of the time the State has remained as a raw material supplier to industries of other States. (viii) In spite of being a mineral rich State, Orissa does not receive commensurate non-tax revenue in the shape of royalty due to non- revision of royalty in time. As a result the State is deprived of its legitimate dues which affects its resources raising abilities. (ix) Traditionally Orissa has been a place of Tourist attraction but the vast scope to attract beach tourism has not been exploited much. Lack of infrastructure, particularly well laid road, rail, air communication and other required infrastructure as well as investment are major stumbling blocks for development of tourism potential of the State. (x) The Human Development Index, a combined measure of achievement in education, health status and quality of living of the population is estimated at 0.404 as against the national average of 0.472. The State is characterized by moderately high literacy rate, significant gender gap in literacy and high infant mortality rate, despite improvements in recent years. (xi) Although Orissa is rich in resource endowments, yet it occupies a lower position in terms of per capita income compared with other States. The State, partly because of its structural weakness that stood in the way of adequate resources mobilisation, partly because of special problem such as large ST&SC population which required special attention and also repeated natural calamities that regularly disstabilise a part of the developmental efforts, has not been able to create the required infrastructure environment to utilise its resources towards faster growth. (xii) Various exogenous policy constraints and larger considerations have prevented full scale commercial utilisation of its natural resources. (xiii) The crucial strategic issues before the State are how to speed up the pace of all round development, while paying attention to the immediate needs of the large number of poor in the State including the large ST&SC population.
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Fiscal Problem
(i) The main factors standing on the way to accelerated all round development of the State are the persistent problem to manage the finances prudently and yet provide enough funds to meet the critical gaps in infrastructure and social services. (ii) In the recent past the State was passing through a phase of low revenue growth, high revenue expenditure, unsustainable debt burden leading to large revenue and fiscal deficit and the resulting fiscal stress had limited the ability of the State to allocate adequate resources for development. (iii) Because of persistent fiscal crisis the State Govt. had to embark upon a fiscal and governance reform programme which envisaged additional revenue generation and expenditure rationalisation measures, restructuring of public enterprises and reducing revenue deficit with a view to generating additional resources for developmental activities.(Detail in Chapter-1) (iv) With such reform initiatives the State has been able to achieve major fiscal turnaround highlights of which are (i) no ways & means advance and overdraft since 2005-06, (ii) elimination of revenue deficit, (iii) generation of fiscal surplus, (iv) reduction in debt stock, (v) increase in capital expenditure, (vi) enhancement of State plan expenditure, etc.
Vertical Transfer:
(i) Vertical imbalance in a federation arises because of a mismatch between large and growing expenditure requirement of State Governments and relatively inadequate revenue assignment and growth of internal resources. Tax payers of all tiers of Government consist of the same population and taxation beyond a point is counter productive. (ii) In the Constitution, the major responsibilities in the sphere of developmental expenditure and administrative expenditure have been given to the States but the more important powers of revenue raising have remained concentrated in the hands of the Centre. Reserve Bank of India published data for 2005-06(Accounts) revealed that all the States taken together have a higher annual budget of Rs.572831.00 crore than the Central budget of Rs.506123.00 crore. On the other hand Central Government collects Rs.366152.00 crore and the State Government Rs.221247.00 crore of the aggregate tax revenue collected throughout the country. States taken together have spent Rs.330044.00 crore and the Centre Rs.229060.00 crore during 2005-06 (Accounts) towards developmental expenditure. (iii) For the first time in the ToR, the 13th Finance Commission has been asked to take into account the projected GBS to the Central and
Memorandum to 13th Finance Commission 341 State Plans as a demand on the resources of the Central Government. This ToR perhaps seeks to restrict the constitutional authority of the Finance Commission. The 13th Finance Commission may take an independent view regarding the GBS as referred to in the ToR and follow the mandate given to it under Article 280 and adopt the approach and methodology in which the Union and the States are treated in a balanced manner. (iv) The share of Central Taxes has been marginally increased by the 12th Finance Commission from 29.5% to 30.5% which is grossly inadequate to meet the developmental needs of the States. It is suggested that the vertical transfer of Central Taxes and Duties should be enhanced from 30.5% to 50% of the net proceeds of the Central Taxes and Duties by the 13th Finance Commission. The Commission should also lay down clearly the norm for cost of collection of Union Taxes and Duties as in the absence of clear-cut objective criteria for determining the collection charges there is scope for reducing the net proceeds and thereby depriving the States of their due share. (v) Export duty on iron and chrome ore should be passed on fully to the State to compensate for pollution, depletion of natural resources and other negative externalities as well as to more generously share the benefits of mineral based industrial growth with the local population affected by mining activities. (vi) The Central Government levies number of surcharges and earmarked cesses. Surcharges are meant to meet temporary exigencies but these are being continued almost on a permanent basis. In the principle of fair distribution of resources, any surcharge, if continued beyond a period of one year, should form a part of the divisible pool.
Horizontal Transfer:
(i) In a federal set up like India horizontal imbalance has its root in the differential capacity and the needs of the State and also differences in the cost of providing services. There are huge income and infrastructure differences across the States. Inter-State disparities among the general category States are not only high but have shown an increasing trend. The per capita SDP in the richest State Punjab was about 2.14 times higher than that of Orissa in 1980- 81. This difference increased 2.52 times in 2000-01. The per capita income levels have tended to diverge sharply in favour of the richer States after market-based reforms were initiated. With economic liberalization, the States with better access to factor and product markets and better infrastructure were able to take greater advantage of the opportunities as compared to the poor States. (ii) The per capita plan outlays of poorer States have always been much lower than those of the developed States. The inability of the
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less developed States to access sufficient resources for the development of infrastructure through their plan outlays has emerged as a critical constraint in redressing regional imbalances. The tax devolution by the Finance Commissions for the last more than 60 years could not offset the weaker resource position of the poorer States. (iii) In a liberalized market driven policy environment, the responsibility of the 13th Finance Commission to ensure a level playing field for less developed States and regions like Orissa cannot be overemphasized. (iv) In the post FRBM scenario the task of formulating a sound transfer system has to establish a fine balance between equity and efficiency, the system where fiscal disadvantage is taken care of and fiscal imprudence is discouraged. (v) To ensure equity, while distributing the sharable net/gross proceeds of the Central Taxes, the Commission should have special consideration for the States with per capita non-plan revenue surplus below the average of all States taken together. (vi) In determining the inter se shares of the States, the factor of population was given a weightage of 25% by 8th & 9th Finance Commissions. The 11th Finance Commission reduced it to 10%. The 12th Finance Commission again fixed the weightage of population at 25%. This State is of the view that since all other criteria are weighted by population, there is no need for taking population as a separate criteria. Rather the social profile of the population i.e. the population belonging to SC & ST category should be taken into account instead of population per se and may be assigned a weightage of 10%. (vii) The concept of using per capita income distance for inter se distribution is being followed by almost all Finance Commissions. This criteria though used for correcting differential fiscal capacities and for enabling the poorer States to meet better the needs for public goods and services, does not address the real need of the poor people of a State. In reality few people having huge income and wealth increases the per capita income of the State and becomes detrimental to the larger population who are poor and having low income. Hence this State is of the view that the Commission may dispense with the criteria of per capita income distance and replace the same by the criteria of population below poverty line and assign a weightage of 50%. (viii) Infrastructure needs is one of the major challenges for the poor States like Orissa which should not be ignored while considering equity. This State is of the view that the Commission may consider assigning 20% weightage to index of infrastructure. (ix) The index of fiscal discipline has been integrated into the principle of horizontal devolution by 11th and 12th Finance Commissions.
Memorandum to 13th Finance Commission 343 Orissa is one of the early States to initiate reform and also enact FRBM Act. The State Government has adopted various revenue generation and expenditure rationalization measures resulting in substantial improvement in its fiscal parameters. Consistent with the overall approach that equity needs to be balanced with efficiency, this State is of the view that the index of fiscal discipline may be given weightage of 20%.
Grants-in-Aid
(i) Need for assistance of individual States are required to be assessed in relation to the services provided by the State, the standard of these services in relation to the desirable norms, and the extent to which these requirements can be met from the own revenues of the individual States. (ii) The Finance Commissions have been restricting their assessment to the States’ non-plan revenue account only. By excluding the plan expenditures and the capital account, the Finance Commissions are taking a partial view of the public finances implicitly assuming that all the States can raise the necessary resources for these expenditures on their own, as supplemented by Plan and other grants. A more comprehensive approach to mitigate this problem would be to first estimate the resource deficits from all parts of the budget, adjust for the plan and other grants, and arrive at a figure of overall deficit. (iii) One of the common features of the process of arriving at assessed deficits across almost all Finance Commissions has been the reliance on the figures for a determined base year for the purpose of projection of revenue and expenditure. It has been seen that States with low resource base have consistently maintained low level of expenditure in various sectors, more particularly in social sector. While projecting the needs of poor States, normative approach should be taken and the base year expenditure can be propped up by suitable proportion so that forecast of expenditure needs can be realistic. (iv) Finance Commission estimates the non-plan revenue expenditure based on past trends or Trend Growth Rate (TGR) for the last eight to ten years with minor modifications to keep the over all non-plan revenue expenditure at a particular level. This TGR methodology systematically underestimates the expenditure requirements of relatively poor States in particular, because their expenditure levels in the past excepting in recent 2-3 years were much below the required level due to their fiscal constraints and low fiscal capacity. (v) Even if the Commission adopts past trends or TGR there are areas where this past trends or TGR should not be strictly applied. These are: expenditure on pension, interest payment, education, health
Memorandum to 13th Finance Commission 344
services, police personnel, fire service, jail personnel and social security schemes. (vi) The impact of 6th Central Pay Commission recommendations on the State finances should be fully taken into account while assessing the expenditure needs of the State. (vii) Similarly, on the revenue side, projecting revenue receipts at a given constant rate of growth over a base year value implicitly assumes that factors that determined such growth in the past will continue into the future. This is almost certainly unlikely in the case of Orissa, which has increased its revenue receipts significantly since 2004-05, both due to increased effort to exploit available ‘revenue slack’, wherever available, and several fortuitous circumstances. None of these can be expected to carry on to the future years; available indications clearly point to no further “revenue slack”, recessionary conditions and substantially lower rates of growth of the tax base. (viii) Despite recommendations of the Sarkaria Commission, NDC, 11th and 12th Finance Commissions, the royalty on coal and other minerals are not revised in time. Timely revision and rationalization of the royalty regime on change over to fully ad valorem basis or in line with international best practices, would benefit not only Orissa but all the mineral rich States, which are among the poorest and least developed. More buoyant revenue from mineral royalty would enable the State Government to more generously share the benefits of mineral based industrial growth with the local population affected by mining activities. This is becoming increasingly critical because of well known problems relating to rehabilitation. (ix) The 12th Finance Commission considered it necessary to recommend grants to achieve specific purposes such as improvement of health, education, maintenance of roads, bridges, buildings, forests and for State Specific needs, of its own discretion, thus establishing that the form and type of grants to be recommended by the Finance Commission is not necessarily dependent on the ToR. (x) Equalization grants for the social services i.e. education and health sectors may be extended to other economic services like maintenance of roads & bridges, irrigation and flood control work and other social services like water supply and sanitation and maintenance of public buildings (residential & non-residential). It is therefore submitted that equalization grant of Rs.1032.70 crore and Rs.648.86 crore may be recommended for education and health sector respectively. (xi) Similarly considering the requirement of the State for maintenance of roads, bridges, non-residential & residential buildings, water works, irrigation embankments, flood control projects etc.
Memorandum to 13th Finance Commission 345 equalization grants amounting to Rs.40572.69 crore may be recommended by the 13th Finance Commission. (xii) Grants for up-gradation of standards of services and state specific needs should be recommended in favour of fiscally disadvantaged States for effective delivery of services, in addition to equalization and maintenance grants. It is suggested that grants amounting to Rs.16387.36 crore for different areas/sectors for upgradation of Standards of Services and State Specific Needs may be considered for recommendation to the State by the 13th Finance Commission. The details are as follows:-
Proposals to 13th Finance Commission for Upgradation & State Specific Grants (Rs. in crore) Sl. Financial Name of the Scheme/proposal No. Implication A. Up-gradation of Standard of Administration 1. Buildings for Anganwadi Worker centres 1228.20 Infrastructure development of Government Colleges and 2. 250.00 Universities Upgradation of Science Laboratories and Libraries of Govt. 3. 85.00 Colleges Computerisation programme for High School/ Higher Secondary 4.03 4. Schools in Tribal Areas Police Administration - Construction of residential and non- 5. 701.32 residential buildings 6. Upgradation of Police Administration and Police Training Institutes. 58.05 7. Upgradation of Fire Services 762.64 8. Upgradation proposal for Judicial Administration 562.94 9. Upgradation proposal for Prison Administration 121.24 10. Upgradation of Services, Training & Infrastructure in Secretariat 16.00 11. Strengthening of Science Laboratories in Secondary Schools 25.00 12. Toilet facilities in Primary / Upper Primary/ Secondary Schools 280.00 13. Drinking water facilities for Secondary Schools 111.60 14. Construction of 360 R.I. Office buildings 25.20 15. Provision for Infrastructure for 145 new Tehsils of the State. 134.85 16. Construction of a Conference Hall at Bhubaneswar 25.00 17. Construction of Residential Quarters 250.00 18. Construction of a new Airstrip at Malkangiri 4.50 Support to Centre for Modernizing Govt. Initiative: Administrative 19. 25.00 Reform Upgradation of standards of services in State Vigilance 20. 85.00 Department 21. Strengthening of Technical Education and Training in the State 150.00 Development of Sports Infrastructure in Rural Areas with Sports 22. 213.58 equipments Construction of Sports Hostel Buildings and Construction of Indoor 23. 35.00 Stadium
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Sl. Financial Name of the Scheme/proposal No. Implication 24. Establishment of 30 nos. of permanent Lok Adalats in the State. 26.55 25. Establishment of Market yards at Block level 60.00 Establishment of Modernised Inspection and Certification 26. 20.00 Centres(MV) 27. Modernisation of 4 Major Border Check gates of the State 32.00 28. ICT infrastructure for PRIs (e-Panchayat) 408.39 Establishment of 185 nos. of Excise Stations and one Training 29. 62.50 Institute 30. Renovation/Addition/Alternation of the 3 Medical Colleges 100.00 Construction of PHC buildings, Staff quarters for periphery 31. institutions and construction of Sub-centre buildings under Health 738.00 Deptt. 32. Procurement of equipments for all Medical Institutions 100.00 33. Development of Tourism infrastructure in the State 158.26 34. Development of a Science City near Bhubaneswar 469.00 35. Support to Agricultural Mechanization and Infrastructure 120.50 36. Upgradation of Power Sector in the State 5000.00 Total-A (Up-gradation proposals) 12449.35 B. State Specific Needs 37. Preservation of old Monuments 45.00 38. Preservation of State Archives 15.00 39. Upgradation of Public Libraries 6.00 40. Preservation and conservation of Buddhist Heritage 20.00 41. Upgradation of State Museum & Regional Museums 30.00 42. Establishment of a Centre of Excellence in Art & Craft 10.00 Heritage conservation and development of Tourist 43. 30.00 infrastructure in and around Shri Jagannath Temple at Puri 44. Socio Economic dev. of Weavers in Naxal affected area 9.73 Consolidation & Strengthening of Eco-Restoration of Chilika 45. 66.54 and Ansupa Lakes Construction of Elephant proof barrier around Chandaka- 46. 14.08 Dampara Sanctuary Conservation and Development of Mangrove Forest and 47. 17.19 Wild Life of Bhitarkanika 48. Preservation of Wildlife 45.42 49. Modernization of Nandankanan Zoological Park 10.70 50. Conservation of Plant Genetic Resources 11.50 Mitigation of Water Pollution in mining and industrial areas 51. 636.16 of the State 52. Combating Coastal Erosion 134.00 53. Drainage Improvement of Different Doabs 839.00 54. Construction of Creek Irrigation Projects 50.42 Construction of raised earthen platform in flood prone 55. 49.30 areas 56. Establishment of State Maritime Museum 10.00 57. Integrated Sewerage System of Sambalpur city 300.00 58. Integrated Sewerage System of Berhampur city 250.00
Memorandum to 13th Finance Commission 347 Sl. Financial Name of the Scheme/proposal No. Implication 59. Comprehensive Sewerage disposal system for Balasore city 420.63 60. Integrated Sewerage System of Jeypore Town. 92.77 61. Improvement of Water Supply of Cuttack city 324.00 62. Improvement of Water Supply of Berhampur city. 303.45 63. Improvement of Water Supply of Sambalpur city. 109.66 64. Combating Maoist and Naxalite Activities 87.46 Total-B (State Specific Needs) 3938.01 Total Up-gradation and State Specific Needs (A + B) 16387.36
(xiii) The Commission may resolve the long standing demand of the State Government for release of State’s share from the “incentive funds” as an incentive for better performance during the period 2000-05 as per recommendations of the 11th Finance Commission. (xiv) While the end use of the grants may be monitored, the matching NPRE by the states may not be insisted upon.
Ecology & Environment
(i) Orissa has been witnessing a rapid growth in mining, industry and coal based Power projects. This has put pressure on the state’s ecology and environment. The state is facing the challenge of minimizing the damaging effect arising out of such activities. (ii) Environment assets of Orissa include two reputed wet lands i.e. Chilika lake and Bhitarkanika areas, forest cover of 58135 sq kms. comprising 37.34% of total geographical area of the State and Similipal bio- sphere reserve rich in reposition of 1076 plant species including more than 200 medicinal plants; 95 species and orchids. The State also harbours rich diversity of fauna. Chilika lagoon alone supports 1003 number of floral and faunal species. (iii) Orissa is alive to the threats to the environment and ecology and has been trying its best, within the financial constraints, to control all types of environmental degradation. The State has been constantly endeavouring to protect the forest areas and regenerate the degraded forests through a comprehensive strategy, but because of paucity of funds, working force and other related logistics, it has not been able to fully accomplish the task. (iv) The rapid growth in steel, aluminium and power sector have resulted in steady increase in the mineral exploitation in the State. However, with all the regulatory and other efforts to maintain environmental equilibrium, the environmental indicators are gradually deteriorating. (v) In order to maintain ecological and environmental equilibrium and environment assets of the State and to implement the working plans
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for scientific management of forests, the Commission is urged to consider recommending: (a) Rs.655.50 crore to meet the costs of creating and rehabilitating different environment assets like plantation in and around industrial cities, mining area, road side plantation in industrial & mining areas etc., (b) Rs.1450.00 crore for implementation of working plans for development and conservation of forest areas, and (c) Rs. 801.59 crore for maintenance and conservation of other ecological assets of the state.(Separately proposed also in Chapter on Grants-in-Aid)
Quality of Public Expenditure
(i) The available resources at the State level needs to be utilized in an efficient manner i.e. to achieve the best outcome possible with the given amounts of public expenditure. Presumably the new ToR for the 13th Finance Commission would want to address this aspect. (ii) Efficiency in public expenditure can be broadly categorized into four aspects; (a) economy, or obtaining inputs at the lowest cost, (b) efficiency, or producing services with the least possible input use, (c) effectiveness, or producing the right outcome and (d) process aspects, or appropriate institutions that promote economy, efficiency and effectiveness. (iii) Orissa has taken a number of measures for strengthening the expenditure management and public financial accountability which include (i) a comprehensive anti-corruption action plan (ii) introduction of e-procurement (iii) improvement in rate of compliance to audit paras (iv) improved UC position (v) emphasis on completion of projects under zero based investment review. (iv) The 12th Finance Commission had recommended for restructuring of public finances. They suggested for introduction of performance- oriented budgeting to ensure economy, efficiency and effectiveness and changeover to accrual-based accounting etc. (v) There is a need to strengthen the public expenditure management system in the State Governments which may include reform in formulation of budget, resource allocation, public procurement system to reduce the opportunities for corruption, debt management, accounting reform, introduction of performance measurement and performance indicators. (vi) To encourage better public expenditure management, the 13th Finance Commission may formulate a system to compare expenditures to outcomes and to measure economy, efficiency and effectiveness in public expenditure management and recommend for incentives and rewards for better performance.
Memorandum to 13th Finance Commission 349 (vii) The 13th Finance Commission may recommend for providing technical assistance in the form of specific purpose grant for comprehensive expenditure management programme across all the Departments of Government with specific components like development of human resources, strengthening institutional capacity, restructuring of the organizations and reform in their processes.
Local Bodies
(i) The 11th Finance Commission recommended Rs.8000.00 crore for Panchayats and Rs.2000.00 crore for the Municipalities. The 12th Finance Commission recommended Rs.20000.00 crores for the Panchayats and Rs.5000.00 crores for the Municipalities. Such grants are grossly inadequate to meet the multifarious requirements of local bodies. (ii) The 13th Finance Commission may estimate the minimum need based expenditure requirements of local Governments normatively and at least 5 percent of central tax collections (besides the horizontal tax sharing) should be devolved in favour of the local Governments, in lieu of adhoc grants to be distributed between the States on a set of distribution criteria based on equity. (iii) Inter se distribution of central resources on the basis of a formula has been adopted by the successive Finance Commissions in absence of satisfactory estimation of State devolution and grant-in-aid in SFC reports. (iv) The State Government is of the view that the inter se distribution of local bodies grants between the States may give more weightage to population-10%, index of deprivation-30%, distance from higher per capita income-40%, geographical area-10% and revenue efforts-10%. Too much emphasis on population and revenue effort will adversely influence allocation to backward States. (v) While recommending adhoc grants to the State normatively, the Commission may duly consider to strengthen the financial base of the local bodies of the State to enable them to improve the quality of public expenditure and efficiently manage the ecology and environment at the local level. While recommending grants to Local bodies, specific needs of the local bodies to meet the requirement for providing infrastructures, maintenance of assets and provision of core basic services to the people of their locality may be given due consideration. (vi) Financial condition of the local bodies and the State would not permit for contribution of matching share. The Commission, therefore, should not put any such conditionalities for matching share.
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(vii) The Commission may provide Rs.10841.65 crore in favour of the Rural Local Bodies and Rs.2978.89 crore in favour of Urban Local Bodies of the State for the period from 2010-11 to 2014-15 to meet the requirements of the Local Bodies. The details are as follows: Rural Local Bodies (Rs. in crore) Sl Purpose Amount 1 Upgradation of Rural Roads 3000.00 Construction of office buildings/ residential quarters for the GPs 2 91.05 and ZPs Multipurpose Conference/ Community Hall at Gram Panchayat 3 411.30 level 4 Administrative Reforms: (Reorganization of Blocks) 314.00 5 Core Basic Services 3212.80 6 Maintenance of Pipe Water Supply Schemes 1035.10 7 Conservation of MI Projects 1214.00 8 Maintenance of Water bodies 240.00 9 Training of PRI representatives 50.00 10 Storage godown 623.40 11 Special Consideration for PESA 600.00 Strengthening of information system and accounting of 12 50.00 Panchayat Samities and Gram Panchayats Total: 10841.65 Urban Local Bodies (Rs. in crore) Sl Description of purpose Amount 1 Solid Waste Management 1000.00 2 Maintenance of storm water 100.00 3 Rain water harvesting structure 50.00 4 Conservation of water bodies 100.00 5 Maintenance of street lighting 178.89 6 Urban Plantation 100.00 7 Basic services to urban poor 950.00 Total: 2978.89
Debt
(i) Continuance of the debt relief scheme in which the NSSF loan repayments should also be included. It may be linked to fiscal performance, but defined in a realistic manner given the present and the likely future fiscal scenario. (ii) Waiver of 10% of the consolidated debt Stock relating to Government of India at the end of each financial year or writing off 50% of the debt stock relating to Government of India at the beginning of the award period.
Memorandum to 13th Finance Commission 351 (iii) Lowering of rate of interest of NSSF loans to 7.5% after consolidation of the outstanding Government of India loans including NSSF loans as on 31.3.2010. (iv) The interest rate now charged on old EAP loans should be limited to 7.5% instead of 9%. (v) In the past indiscriminate borrowing without linking to fiscal capacity has led the States to debt-stress. The recommendation of 12th Finance Commission to fix an annual borrowing ceiling to finance the State Plan Outlay, though desirable, the developmental needs of the States should not be overlooked. For backward States like Orissa though a ceiling on borrowing is to be fixed, adequate Plan grants should be provided to meet the needs of development to catch up with the developed States on various parameters of development.
Goods and Services Tax
(i) Goods and Services Tax (GST) which is proposed to be implemented w.e.f. 1st April, 2010 is a step further to reform the indirect taxes on goods and services in the country. (ii) The GST model, as proposed by the Empowered Committee of State Finance Ministers, envisages subsumation of VAT, Entertainment Tax, Luxury Tax, Entry Tax in lieu of Octroi, State cess and surcharges. An acceptable Revenue Neutral Rate (RNR) is to be determined to protect the State’s revenue interest. (iii) Since the road map for introduction of Goods & Services Tax and its model has not yet been finalized, it would be premature to assess its impact on the finances of the Centre and States. However, adoption of a unified model of GST at the Central Government level would severely curtail the taxing power of the States and impinge on the constitutionally guaranteed fiscal autonomy of the States. (iv) The State Government would urge upon the Commission to preserve the constitutionally guaranteed fiscal autonomy and protect the Taxing Power and Revenue Potential of the States in relation to Taxes on Goods & Services so that there is ample room for them for flexibility at the time of need for fiscal adjustment.
Calamity Relief & Disaster Management
(i) Estimating requirements of funds for Calamity Relief going by actual expenditures incurred in the past can be subject to an inherent bias against low income State, because their actual expenditures are usually constrained by availability of resources. Hence, the only important consideration in this context should be the proneness to natural calamities, their occurrence and the severity of these in a State.
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(ii) The totality of expenditure for relief and rehabilitation should be taken into account while determining the corpus of the State’s CRF. (iii) The restriction of incurring expenditure out of CRF/NCCF only on the eleven listed calamities should be waived and calamities like Lightening, Heat Wave (Sunstroke), thunder storm, tornado and drowning of boats should be included in the list of Natural Calamities for the purpose of expenditure from CRF/NCCF. (iv) Ex-gratia payment to bereaved family of deceased persons in boat accident during normal time while ferrying and transporting may be included in the norms of expenditure. (v) Maintenance of multipurpose cyclone shelters and emergency equipments may be included in the norms of expenditure. (vi) Repair and reconstruction of buildings of all types of Educational Institutions in addition to primary school buildings may be included in the norms of expenditure. (vii) Exemption of tuition & examination fees for the children of calamity affected small & marginal farmers may be included in the norms of expenditure for reimbursement to the concerned authority. (viii) There should be provision for giving subsidy, out of CRF, to farmers whose lands are inundated by saline water for more than 15 days due to storm surge and Tsunami for re-fertility of the land by calcifying the soil or removal of the crust from the land. (ix) Provision should be made for restoration of public utility services to bring them to pre-calamity level. (x) In severe drought conditions, norms may be relaxed for expenditure on capital works like digging of bore wells, installation of pump sets etc. (xi) In fixing the corpus of State’s CRF, increase in the relevant price index should also be considered. (xii) The funding of relief and rehabilitation during Natural Calamities of rare severity should be flexible and adequate and it should be free from political bias. (xiii) The low income States facing the wrath of recurring natural calamities year after year should be allocated an additional allocation of 30 percent of the aggregate size of the CRF, in line with the recommendations of the 11th and 12th Finance Commissions. (xiv) Centre - State contribution to the State’s CRF should be set at the ratio of 90:10, instead of present 75:25. (xv) The CRF for Orissa should be determined at Rs.615.00 crore per annum and an additional allocation of 30 percent of the size of the CRF may be provided because of persistent problems of the State. Total CRF requirement has been projected at Rs.800.00 crore (Rs.615.00 crore + Rs.185.00 crore – 30% additional). Total corpus
Memorandum to 13th Finance Commission 353 may be recommended at Rs.4000.00 crore for the period 2010- 15(Rs.800.00 crore x 5 years). (xvi) The corpus of the NCCF should be raised Rs.1000.00 crore (i.e. double the size recommended by 12th FC). The Commission should define the basis on which funds from the NCCF should be released in favour of a State needing assistance from the NCCF most. (xvii) For Disaster Mitigation, a sum of Rs.7431.64 crore may be provided to the State during the period 2010-15.
A case for Special dispensation for Orissa:
(i) Orissa is one of the most disadvantaged States and trails behind other general category States in terms of socio economic indicators, human development indicators, availability of public infrastructure, quality of delivery of public service etc. It has not been able to fully derive the benefits of the economic reform, the greater part of the benefits of which have gone to developed States having quality socio economic infrastructure. (ii) The State has low fiscal capacity and the inter-governmental transfer system does not offset fiscal disadvantages of the State. It has all the characteristics of a special category State except for its location for which it could not be treated as a special category State. (iii) The low fiscal capacity of the State obviously increases the responsibilities of the State towards its citizen compared to a State with higher incomes as in the latter case public supply can be to some extent substituted by private supply. The socio economic underdevelopment of the State puts the latter option outside the reach of most of its citizens. Additionally, the responsibility to strengthen the low levels of infrastructure also puts large expenditure burdens on the State Government. (iv) While the State has successfully eliminated the budgetary deficit on revenue account, as recommended by the 12th Finance Commission and consistent with the target set in the FRBM Legislation, there remains very large “developmental deficit” to be addressed. Per capita income in the State is still about 33% behind the national average. (v) The State is yet to achieve the debt sustainability threshold of 28% of GSDP, prescribed by the 12th Finance Commission compared to which the State’s Debt GSDP ratio is much higher. Therefore the State needs higher scale of debt write off. (vi) The State which has been growing very fast during the recent years, is very poor in the development of infrastructure. This has eroded the States competitiveness. FDI equity to the State, generally taken to be function of the availability of such infrastructure, as percentage of total FDI equity inflow in India stands at only 0.13%.
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Without adequate road, rail and ports, telecommunication and efficient irrigation system, the economy cannot exploit its potential and sustain the rapid economic growth of recent years. Massive upgradation of urban infrastructure is also needed to be able to attract and retain the skilled labour force demanded by modern industries and services. (vii) The State has small villages/habitations with population below 500 which do not confirm to the PMGSY priorities for rural connectivity. Some habitations are also having population below 100 and not eligible to be covered under RGGVY for rural electrification. Such connectivities would require high level of investment and thus a cost disability for the State. Geographical exclusion has been a hindrance for equitable growth of the State. (viii) Proportion of SC and ST in the population is among the highest in the State. The majority of ST population is living relatively in isolated hamlets which are very poorly connected. As pointed out above, these habitations/hamlets having less than 500/100 population are deprived from the rural connectivity programmes of Government of India and do not qualify for Central assistance. (ix) The Naxal problem affecting as many as 15 revenue Districts of the State requires special interventions to remove the basic causes of discontent, dis-affection and sense of elimination from the main stream by a section of the population which has concentrated in hilly and forest terrain. The disparity in availability of fiscal developmental and social infrastructure in the Naxal affected areas is to be removed. The expert group set up by the Planning Commission on “Development issues to deal with causes of discontent, unrest and Extremism” have recommended for universalization of basic social services as per national norms. These measures cannot be implemented by the State Government alone and specific assistance is needed. (x) The location of the State on the eastern sea board has made it vulnerable to recurrence of severe cyclonic storms which wreck havoc in the coastal belt. The revisiting or recurrence time of a severe storm and storm to the Orissa coast is around 4 years and 2 years respectively which is much less than that of the other States. Further the State’s river system with deforested catchment area experiences flash floods owing to rise in the level of the river bed through siltation. Erratic visit of monsoon also causes severe drought in rain-fed areas. These calamities ravage the life and livelihoods of the populace and impair their coping mechanism. The degree of vulnerability and severity of the natural calamities to which the State is prone makes out a case for larger allocation from the proposed funds for Disaster Response and Disaster Mitigation. (xi) Inspite of natural resource endowments like large deposits of major minerals, the State has not yet been able to realize adequate
Memorandum to 13th Finance Commission 355 revenue from this potent source because of the method of fixation of royalty and delay in its timely revision. Neither royalty is fixed by the Central Government as per market value nor is revised at periodic intervals. The loss suffered by the State Government on this account has not been compensated although recommended by 11th and 12th Finance Commissions. The present receipt from royalty is likely to decrease because of recession in mineral based trade and industries. More buoyant revenue from mineral royalty would enable the State Government to more generously share the benefits of mineral based industrial growth with the local population affected by mining activities. (xii) Orissa is a pioneer in power sector reform. The State has fully privatized the distribution of electricity while in other States(except New Delhi) the distribution business is being carried out by Government companies and huge amount of subsidy is being paid by the respective State Governments. National Electricity Policy aims at availability of electricity to all households by 2012. This would require extension of transmission network to those areas which are highly un-remunerative. Maintenance of existing network is also a problem. Since Orissa has done pioneering work in power sector and other States have learnt from the experience of Orissa, the Finance Commission should provide incentive to the State for upgradation of distribution system and transmission network in the State. (xiii) In recent times, resource bearing States are able to attract investments from both national and international fora. Resource development creates land alienation and deterioration, land morbidity, loss of fertility, loss of traditional livelihood, low income out of agriculture and other traditional income sources, increased mortality from environment health hazards and large scale displacement. Environment impact of resource development is tremendous which is already felt in the State in irregular monsoon, cyclonic storms and heat conditions. The State is alive to the threats to the environment and ecology and has been trying its best, within the financial constraints, to control the environmental degradation. However, substantial assistance is required to protect and liven the environment assets of the State. (xiv) In the past on implementation of recommendations of the 5th Central Pay Commission, the State slipped into huge deficit, overdraft and became a debt stressed State. Only recently the State has recovered from fiscal crisis. State has already implemented the recommendations of the 6th Central Pay Commission. The actual financial burden on such account would be huge and can only be estimated at present. This financial burden would be unsustainable and since the State does not have a wide resource base the State may again slip into deficit and
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debt. The Commission should, therefore, consider bearing the full cost of the impact of 6th Central Pay Commission.
Conclusion
Orissa has been recognized as a reforming State by Government of India and multilateral Aid Agencies partnering with the State Government for carrying out structural adjustment programme and sectoral reforms. The reform efforts of Orissa has yielded positive results in terms of fiscal turn around. The State has also been eligible to avail incentive grant and fiscal performance based debt relief recommended by the 11th & 12th Finance Commissions. The State Government are also following a prudent debt and cash management policy and are making all attempts to achieve debt sustainability. The fiscal turn around has been possible through a painful adjustment process. This turn around has not brought about any significant improvement in the fiscal capacity of the State to cater to its developmental needs and growth deficits. It may not be possible to withstand exogenous shocks like the adverse impact of a global recession accompanied by slow down in economic growth, decrease in exports, falling revenues and a sharp rise in revenue expenditure on implementation of the 6th Central Pay Commission recommendation. In order to carry forward the fiscal consolidation process initiated under the aegis of 11th & 12th Finance Commissions and also to rescue the State from slipping into fiscal stress, suitable transfer mechanism should be devised which will not only bring about fiscal stability for State but also foster Macro Economic Growth & Stability.
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Introduction:
Hon’ble Chairman, Dr. Vijay L Kelkarji, Hon’ble Members, Secretary and other Officers of the Thirteenth Finance Commission, Members of Council of Ministers, Chief Secretary, Senior Officers of the State Government, I extend a hearty welcome to you all and hope that the brief stay of the Commission in the State would be pleasant and memorable.
The Thirteenth Finance Commission is headed by a renowned Economist and distinguished expert on Taxation. The Members are persons of eminence in their respective fields. I sincerely hope that the Commission would definitely appreciate and address the special needs of developing States like Orissa.
2. Orissa is a developing state having many critical needs. It is well known that Orissa’s development has been slow because of several reasons. However, in recent years MoUs have been signed with various industrial houses to set up industrial projects in the State. But in view of global recession the prospect of these industries in the State is likely to receive a set back. Since the economy is heading towards a down-turn, this will also affect the collection of State’s Own Tax and Non- Tax Revenue adversely along with a diminished share in Central Taxes. The fact of reduction in Shareable Pool of Central Taxes has already been reflected in the Interim Budget of Union Government presented a few days ago. So the role of
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the Thirteenth Finance Commission assumes critical significance for poorer States like Orissa to overcome this critical phase of the economy.
3. How Orissa was deprived of due share under Tenth and Eleventh Finance Commissions:
Orissa was deprived of its due share both by the Tenth Finance Commission and the Eleventh Finance Commission for which the finances of the State were not only badly affected but structural imbalance also set in. This had wide ranging ramifications on the economy of the state. The Tenth Finance Commission reduced the State’s percentage share in tax devolution out of the divisible pool to 4.256% from the level of 4.851% recommended by the Ninth Finance Commission. The grant-in-aid awarded by the Tenth Finance Commission was also reduced to 4.46% from 6.93% recommended by the Ninth Finance Commission. As a percentage of the aggregate transfer of resources recommended by the Tenth Finance Commission, it was 4.28% as against 5.21% of the aggregate transfer recommended by the Ninth Finance Commission.
The State also did not receive a favourable dispensation from the Eleventh Finance Commission. The percentage share of Orissa from the divisible pool was raised on the one hand and on the other hand the share in the grant-in-aid was reduced. The share of the State in terms of percentage of the
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aggregate transfer under the Eleventh Finance Commission was below the level recommended by Ninth Finance Commission. The State also had to sustain loss on account of under-pitching of the expenditure on Interest and Pension payments and overestimation of the receipts by a wide margin. As a result of such imbalance in the assessment, the State had to lose more than Rs.7500.00 crores during the award period of Eleventh Finance Commission beginning from the year 2000-01 to 2004-05.
4. Award of the Twelfth Finance Commission:
In contrast, the favourable dispensation of the Twelfth Finance Commission has been beneficial to Orissa. There was an increase in the State’s share in Central Taxes to the level higher than the level recommended by the preceding three Finance Commissions. There was also a substantial step up in the grants recommended by the Commission. The Commission also recommended some path breaking measures like application of equalization approach on the expenditure side. Two critical areas like Education and Health were the focused areas and equalization grants were recommended for these two sectors along-with grants for maintenance of public roads and buildings. These grants went a long way to supplement the low fiscal capacity of the developing States and enabled them to have better social and physical infrastructure so as to improve the quality of life of the people at large. The fiscal performance
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based Debt Consolidation and Relief Facility recommended by the Twelfth Finance Commission has also helped in fiscal consolidation. It is worth mentioning that Orissa had enacted the fiscal responsibility legislation with a rule based fiscal and debt management policy. As a result of favourable dispensation from the Twelfth Finance Commission and the fiscal reform measures initiated by the State Government, the fiscal targets could be achieved much ahead of the prescribed time line.
Tax sharing formula – both horizontal and vertical:
5. In a federal set up like India, the taxation power is heavily tilted in favour of the Centre. The States have higher expenditure commitments because of allocation of more number of functions having a direct link with the people. Because of rising hopes and aspirations of the people, improvement in the quality of services delivered by the state Government has become imperative. However, the limited power of the State Government to raise resources for effectively discharging the functions allocated by the Constitution calls for increase in the quantum of tax devolution to the States.
6. The Empowered Committee of State Finance Ministers have posed before the Commission, to increase the share of the States to 50% of the net proceeds of central taxes and duties from the existing level of 30.5%. I fully endorse the
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stand taken by the Empowered Committee. The Export Duty on Iron ores and Chrome ores should be passed on fully to the mineral bearing states as these states bear the negative effects of mining industries in terms of environmental degradation, depletion of natural resources and displacement of the local population. These States, in spite of being rich in mineral resources, are less developed and need additional resources to cater to their developmental needs.
7. The continuance of a number of surcharges and cesses on the Central Taxes for a longer time deprive the States from accessing such revenues as they are kept out of the constitutionally mandated shareable pool. These surcharges and cesses ought to be temporary measures to provide resources for a specific purpose. On being continued for long periods such instrumentalities provide extra handle to the Centre to levy and appropriate additional revenue. Therefore, in the interest of equity and fair play, any surcharge, if continued beyond a period of one year, should continue to form a part of the divisible pool.
8. There is a wide disparity among the States in terms of area, population, per capita income, resource base, availability of social and physical infrastructure etc. The States with better access to economic factors and infrastructure were at a greater advantage to reap the benefits of the economic reforms and attracted higher capital investment as compared to the poorer
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States. Therefore, in order to provide a level playing field to the less developed States like Orissa, increased share of tax devolution may be granted to overcome their socio-economic handicap and come up to the level of their developed counterparts. The Commission, is therefore, urged upon to adopt the criteria of population below poverty line, infrastructure index, fiscal discipline and concentration of SC and ST population with respective weights of 50%, 20%,20% and 10% while determining the inter-se distribution of shareable taxes and duties.
In this connection, it is further submitted that the devolution of central taxes in the recent past had no certainty about the quantum of the flow as there was wide fluctuation between the amount of tax devolution assessed by the Finance Commission for a State and the actual release by Government of India. The State Government had to endure shortfalls of resources relating to its share in Central Taxes to the extent of nearly Rs.3663 crores during the award period of the Eleventh Finance Commission. This reduced the availability of resources for the State’s plan programmes. In order to obviate such difficulties and to impart a degree of certainty to the devolution of Central Taxes, the Commission should set a floor level for tax devolution to each State equal to the assessment made by the Finance Commission.
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9. Critical issues – negligence of Centre:
The State is suffering from many disabilities due to deficiencies and shortcomings of national policies in certain critical areas. The national policy on Minerals and Mining royalty, design of the APDRP (Accelerated Power Development and Reform Programme) scheme during the 10th and 11th Five Year Plan period are a few examples of the lack of proper attention to the legitimate claims of the State Government.
i) Mining royalty -
Since the revision of the rate of royalty of major minerals is in the hands of the Central Government and the royalty structure is primarily based on the quantity of the minerals dispatched for sale instead of its sale price, the State Government have no scope to optimize collection of revenue on minerals. The Eleventh Finance Commission recommended that the delay in revision of royalty should be suitably compensated. The 12th Finance Commission recommended that royalty being an important source of revenue of some of the States, the rates of royalty should be fixed on ad-valorem basis. Besides, in certain cases, like Chrome ore, the royalty is levied on the benchmark price fixed by Indian Bureau of Mines instead of the actual sale price which is much higher. Delay in periodic revision of royalty also affects the revenues of the State. The State
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Government stand to lose due to delay in revision of royalty on coal. Similarly, the loss sustained by the State Government on adoption of the hybrid system (Tonnage & Price) instead of ad-valorem basis needs to be compensated. Further, a huge amount of loss is incurred on account of continuance of the existing system of royalty on Iron Ore on tonnage basis instead of the proposed ad-valorem basis. These issues could only be addressed through rationalization of the royalty regime by a change-over to full ad-valorem basis or by aligning it with international best practices.
The Commission, should therefore, deliberate on the issue of timely revision of royalty rates of major minerals as well as the modality for fixation of royalty and also take into consideration its impact while assessing the State’s revenue resources.
ii) Power sector reform -
Orissa was the pioneer in power sector reform and was the first State to un-bundle the State Electricity Board. It has established a Regulatory Commission for tariff setting and privatized the electricity distribution business to bring in efficiency and reduced the transmission and distribution loss through private enterprise and investment. The generation and transmission sectors have become viable and the State Public Sector Undertakings have lined up investment
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programmes in the generation and transmission segments. However, the reform in the distribution sector could not bring about the desired result for which there is prevalence of high level of transmission and distribution loss. Perhaps Orissa is the only State which has not provided revenue subsidy to any category of electricity consumers in the Post- Reform era.
It is disheartening to note that the full benefits of APDRP Scheme were not available to the State Government. When other States could leverage incentives under the scheme, Orissa got nothing, in spite of being the first reforming State in the Power Sector, because of the fact that the distribution business in Orissa was privatized. The incentive component of the scheme was not released although there was reduction in loss by the Distribution Companies. Had the grant been released during the 10th plan period, it could have been utilized for system improvement in the distribution segment. The re-designed APDRP during the 11th Plan period is also going to by-pass Orissa as it will not be applicable to private distribution entities. Since viability of the distribution business holds the key to the turn around of the power sector, the Commission should appreciate the problem and impress upon Government of India to modify the policy guidelines under APDRP and make the privatized distribution companies (DISTCOs) of Orissa eligible for APDRP assistance or pass on these assistance
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through one of the State-owned undertakings in the Power Sector.
10. Low Socio-economic Indicators:
Orissa has been one of the less developed regions of India with high incidence of poverty and more than one third of the total population belong to economically and socially disadvantaged groups like Scheduled Castes and Scheduled Tribes. Endowed with rich mineral resources, Orissa could have been a vibrant industrialized State but for several factors which hindered its growth. In the post liberalization scenario strong fiscal correction measures taken in the recent years have helped the State in becoming one of the fastest growing States of India. Yet the State’s growth is impeded by several adverse socio economic indicators like high Infant Mortality Rate, lack of access to Safe Drinking Water for many households, lower per capita income below the national average, highest percentage of population below the poverty line as per the Poverty Estimates of 2004-05. However the State has been making sincere efforts to bring about rapid development but can not do so on its own because of fiscal constraints.
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11. Lack of Key Infrastructure:
The State does not have adequate critical infrastructure like National Highways, Railway connectivity, Ports and telecommunication facilities etc. Although the State has a long coast line of 480 Kms i.e. 6% of the total coast line of the Country, it has only one major port. Similarly, Railway network has not spread widely across the State and many strategic locations are without railway link. There is need for large public and private investment for development of these infrastructures. The towns and cities of the State do not have adequate infrastructure to cater to the needs of ever rising urban population. The urban infrastructure including low cost housing, sewerage and sanitation facilities and public transport system are to be developed on a priority basis. Hence the need for a substantial resource support through the award of the Thirteenth Finance Commission is crucial for the State.
12. Debt relief:
The Debt Consolidation and Relief Facility has benefited the State Government in many ways. The consolidation of loans and lowering of the interest rate have helped in reducing the interest expenditure. The debt write off on the basis of fiscal performance have helped in relieving the State Government of repayment liability. On the whole, it helped
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the State Government in progressing towards fiscal and debt sustainability. There is a need for continuation of such a facility to put the State Finances on a sustainable path in view of the historic debt induced Central Plan Assistance and high interest rate on NSSF (National Small Savings Fund) accumulations.
The back to back arrangement for availing external assistance introduced by the Twelfth Finance Commission has also passed on the exchange rate risk to the State Governments. Therefore, the Commission should prescribe a limit to it in order to avoid any currency mis-match with a mechanism for hedging the exchange rate fluctuation risk.
Since the debt consolidation and relief facility recommended by the Twelfth Finance Commission benefited the state, it should be continued by the Thirteenth Finance Commission. Besides, the interest rate on NSSF should be lowered to 7.5% after consolidation of all loans availed from Government of India. The rate of interest of old EAP (Externally Aided Project) loan should also be brought down to 7.5%. While fixing the Annual Borrowing ceiling of the State, due consideration should be given for the developmental needs of the States like Orissa.
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13. Grants for Equalizing expenditure on Economic and Social Services:
In view of the inadequacy of social and physical infrastructure and low fiscal capacity of the State, the Commission may continue the equalization grants for the Education and Health Sectors by increasing the percentage of equalization applied by the Twelfth Finance Commission to 30% and 60% respectively for which the State Government would need a grant of Rs.1032.70 crore for the Education Sector and Rs.648.06 crore for the Health Sector during the award period of the Commission. Further, specific grants for Public Buildings, Roads and Bridges may also be extended to other economic services like Irrigation and Flood Control and Water Supply and Sanitation.
14. Grants for Local Bodies:
The State Government have constituted the Third State Finance Commission for recommending transfer of resources to the Local Bodies by the State Government. The Thirteenth Finance Commission may consider to provide grant in aid to the extent of Rs.10841.65 crore and Rs.2978.89 crore to augment the Consolidated Fund of the State so as to supplement the resources of the Rural and Urban Local Bodies respectively during the period from 2010-11 to 2014- 15. While considering this demand of the State Government,
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the First Report of Third State Finance Commission may also be taken into consideration.
15. State Specific Needs:
The problem of left wing extremism affecting as many as 15 Revenue Districts of the State requires special intervention by the Commission. Lack of adequate connectivity, inadequate access to basic minimum services like education and health care facilities at par with developed areas, disparity in availability of physical, developmental and social infrastructure in these areas are some of the main causes of the problem of such extremism.
A special dispensation for the State Government may be provided by the Thirteenth Finance Commission under the State Specific needs for socio-economic development and strengthening the law enforcement machinery to combat the threat to maintenance of law and order and internal security.
The Commission is empowered to take into account the specific needs of the State Government for effective delivery of public goods and services. The areas in which such assistance is required is indicated in the Memorandum submitted to the Commission. The Commission may favourably consider the demand of the State for Grant-in-Aid of Rs.16,387.36crore for State Specific needs.
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16. Natural Calamities:
Orissa is highly vulnerable to natural calamities like cyclones and floods and recurrent drought in case of failure of the monsoon. The recurrence of the natural calamities in the State affects the State’s economy, developmental process and the coping mechanism of the people. Except for the repair and restoration measures out of the Calamity Relief Fund, there is no provision for permanent Disaster Mitigation Work from the Fund. These works are to be provided by the State Government out of its own resources or accessed from external donor agencies. In the calamity affected areas, the State Government provides exemption/remission of Government dues. In view of the adverse impact of the natural calamities on the economy of the States, the additional allocation of 30% for low income States should be allowed and the State’s contribution should be brought down to 10% from the existing level of 25%. The corpus of Calamity Relief Fund may be increased to R.4000.00 crore for the entire award period of 2010-15. Similarly, the corpus of NCCF (National Calamity Contingency Fund) should be doubled and the release from NCCF should be based on explicit norms. For disaster mitigation works an amount of Rs.7431.64 crore is posed before the Commission for consideration.
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17. Ecology and Environment:
Government of India have taken a timely step in incorporating the need to manage ecology, environment and climate change consistent with sustainable development in the terms of reference of the commission. It is an acknowledged fact that climate change poses a serious challenge to development. The environmental assets of the State have a serious threat perception from rapid growth of industrial and mining activity as well as encroachment and degradation of the forests. The State Government would, therefore, urge upon the Commission to provide grants for to the extent of Rs. 1450.00 crore for financing developmental and conservation measures to protect the forest areas of the State. In addition, the State Government would also request the Commission to provide grant of Rs. 655.00 crore for maintenance and rehabilitation of the environmental assets of the State.
18. Goods and Services Tax:
Although the timeline for introduction of Goods and Services Tax has been indicated as 1st April, 2010, the road map for its introduction and the proposed model have not yet been finalized. It is needless to mention here that introduction of GST should not distort the constitutionally guaranteed fiscal autonomy of the States and take away
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their taxing power. At the same time, the interest of the State should be protected by design of a suitable compensatory mechanism in case of any loss suffered by the State Government. In no case, the State would agree to unified GST model at the central level which severely compromises on the taxing power of the States and their autonomy guaranteed by the Constitution.
19. Impact of Sixth Pay Commission and Global recession:
The recommendations of the Sixth Central Pay Commission have cast a huge financial burden on the State Government requiring revision of Pay and Pension of the State Government employees. It may be recalled that it took a number of years for the State to recover from the impact of the fiscal shock of the recommendations of the Fifth Central Pay Commission. The State Government have already implemented revision of pay scales and pension on the basis of the recommendations of the Sixth Central Pay Commission from 1st January, 2006.
The global recession has hit the national economy and also started to impact the finances of the State Government. This situation calls for a collective response at all levels. In order to counteract the impact of economic meltdown, substantial transfers from the Central government on the
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recommendations of the Finance commission should be considered for the States with low resource base like Orissa.
The Commission may take into account the impact of recession, the burden on the State on account of Pay and Pension revision while recommending the assistance needed by the State.
20. Fiscal discipline:
It is needless to mention that Orissa has emerged out of severe fiscal stress through various reform measures. It has achieved almost all the fiscal targets set by the Twelfth Finance Commission and enacted the Fiscal Responsibility and Budget Management Act. The Commission should formulate a suitable fiscal transfer mechanism as a reward for the fiscal discipline and performance exhibited by the State Government in the recent years and enable it to realize its full growth potential.
We have made our detailed submission in the Memorandum submitted to the Commission. The basis of forecast of receipts and expenditure has also been indicated separately. I have only tried to explain some of the important areas concerning the State’s developmental and fiscal needs. I am sure that the Commission, under your able Leadership and guidance would take a holistic view of the fiscal problems afflicting the State and the developmental
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needs with reference to its fiscal capacity. I am hopeful that the Thirteenth Finance Commission would provide a favourable and special dispensation to the State in order to strengthen its financial base and enhance its ability to make adequate investments in social and physical infrastructure to develop Orissa at a faster pace. In this connection, I would also like to draw the attention of the Hon’ble Chairman that consideration of equity is equally important as efficiency parameter in arriving at a fair and just dispensation. I do hope that the Thirteenth Finance Commission will address the special needs and concerns of a developing State like Orissa so that it can fulfill its obligation to the people of Orissa in ensuring their speedy development and progress.
Jai Hind.
376 THEMES COVERED FISCAL REFORMS, CHALLENGES AHEAD IN THE CONTEXT OF INCLUSIVE GROWTH AND SPECIAL NEEDS — Critical Gaps in Development — Fiscal Recovery and Challenges Ahead — Sectoral Innovation in Government — Assessment by previous FCs and Actuals — Basis of Forecast — Suggestion to the 13th Finance Commission. ¡ Devolution of Central taxes ¡ Grants-in-Aid PRESENTATION ¡ Debt Consolidation and Relief facility TO ¡ VAT and Goods & Services Tax THIRTEENTH FINANCE COMMISSION ¡ Calamity Relief
FINANCE DEPARTMENT ¡ GOVERNMENT OF ORISSA Grants to Local Bodies 26th February, 2009
Orissa in Brief
— Orissa is one of the major States of India situated on the east coast of the country. — Its geographical area is 1,55,707 sq. Km and occupies 9 th position in the country. Critical Gaps in Development — It’s population is 3.68crore as per 2001 census and occupies 11 th position in the country. The density of population is 236 against national average of 324. SC & ST population constitute 38.66% of total population. — The State is mainly an agrarian economy with about 70% of population depend on agriculture. Industrial Process boosted up in recent years. — The State has a coast line of 480 Kmsand rich endowment of mineral resources.
Selective Socio-Economic Indicators Percentage of Population Below Poverty Line
60 Indicators Orissa All India 50 IMR 73/ 1000 57/ 1000 40 Life Expectancy 59.2 62.3 30 Literacy 63.08% 64.84% 20 School Enrolment 108.47 93.54 10 Human Development Index 0.404 0.472 0 Households with Safe Drinking Water 64.2% 77.9%
Bihar Gujarat Kerala Orissa Punjab Per Capita Income Rs.16195/- Rs.24256/- Haryana All-India Jharkhand Karnataka Rajasthan Tamil Nadu Chhattisgarh Maharashtra Uttar PradeshWest Bengal Population Below Poverty Line 46.4% 27.5% Andhra Pradesh Madhya Pradesh Productivity in Agriculture 13.41 qtl./hec. 17.31 qtl./hec. Urban Rural Total
1 Need for Accelerated Growth Major Constraints to Growth
— Orissa is lagging behind in Social and Economic — Started with low base in Physical Capital and Human Indicators Capital- Right from 1936 when the State of Orissa — Growth Led Development and Support Led was formed. Development — Manufacturing Base Low –Trade & Commerce Low — Orissa needs both — Special Human Capital Need –ST 22% & SC 16% — Fiscal correction to release resources for growth — Impact of Global Recession
Major Constraints to Growth Major Constraints to Growth
• Prone to Natural Calamities – — Consequence to Growth of Recurring Natural Year Calamity Calamities 1999 -00 Super cyclone ¡ Wide swings in Growth Rate 2000 -01 Drought ¡ Natural Calamity – Direct Impact on Agriculture and Rural 2001 -02 Flood Economy. 2002 -03 Drought 2003 -04 Flood ¡ Take the State away from Potential Growth Path 2004 -05 Flood ¡ Natural Calamity pulling resources from other sectors. 2005 -06 Flood ¡ Hindrance to Revenue Generation. 2006 -07 Flood 2007 -08 Flood 2008 -09(June & Sept.) Flood Affected by Natural Calamities on a regular basis –whatever timescale you use
Growth Rate of GSDP Immense Possibilities
25.00% — Untapped irrigation Potential Current Prices Constant Prices — Mineral Endowment 20.00% — Fisheries 15.00% — Forest Wealth
10.00% — Tourism — Need for Investible Resources 5.00% — Maintenance of surplus on Revenue side is of critical
0.00% importance 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 (Q) (A)
-5.00%
2 Pre-Reform Fiscal Situation
— Grim Fiscal Situation in 1999-2000 leading to Fiscal Imbalance ¡ Large and unsustainable Revenue Deficit : 6.05% of GSDP ¡ Large Fiscal Deficit : 8.94% of GSDP ¡ Unsustainable Debt Level : Debt Stock/ Revenue Receipt ratio Fiscal Recovery and Challenges Ahead above 300% ¡ High Debt Servicing Cost : Expenditure on account of debt servicing was of the order of 50% of Revenue Receipt ¡ Liquidity crunch leading to over dependence on W&M Advance and O.D : Treasury remained closed during most part of the year ¡ Fiscal stress Affected Growth : Ability to provide Funds for Development was severely affected
MoU and Reform Measures Undertaken Revenue Step-up Measures
— Signing of MoU with Government of India in 1999 & 2001 — Rationalization of Sales Tax Rates to implement an agreed set of reform measures. — Introduction of Entry Tax from November, 1999. — Formulation of Medium Term Fiscal Plan withmonitorable fiscal targets. — Introduction of Tax on Profession — Enactment of Fiscal Responsibility Legislation in 2005. — Introduction of VAT w.e.f.1.4.2005 — Computerization of Commercial Taxes Organization — Rationalization of Stamp Duty & Registration fees and steps to check under valuation.
Expenditure Compression Measures Reform Outcomes
— No subsidy to Power Sector after Power Sector Reform since 1996-97. — Public Enterprises Reform – Closure & Privatization of loss TFC Targets Actual Achievement/ Projection making PSUs – Reduction in Budgetary support 2004-05 2005-06 2006-07 2007-08 — Reduction in explicit subsidy (Actuals) (Actuals) (Actuals) (Actuals) — Freeze on service benefits to employees like SLS, LTC etc. Salary/Net Rev. Exp 35% 51.11% 49.70% 41.01% 35.38% — Introduction of new VR Scheme Interest / RR 15% by 2009- 10 28.12% 26.25% 17.68% 14.43% — Freeze on fresh recruitments & contractual appointment on consolidated salary in essential sectors like Health Care & Revenue Deficit/ GSDP 0% by 2008-09 -0.73% 0.61% 2.42% 3.99% Primary Education etc. & also redeployment -1.91% -0.35% 0.88% 1.24% — Defined Contributory Pension Scheme has been introduced Fiscal Deficit/ GSDP 3% w.e.f. 1.1.2005 for the new recruits in the regular Debt Stock/ GSDP 28% 47.68% 46.17% 39.89% 34.11% establishment.
3 Status on observations of the 12 th FC Sectoral Trend in Expenditure
— The Revenue Deficit/GSDP Ratio of Orissa during 2000-03 was 4.91% only second to West Bengal. Revenue Surplus of 3.99% of GSDP generate d in 2007 - 60.00% 08.
— During 2000-03, Orissa became the highest fiscal deficit State. Fiscal Deficit 50.00% contained within 3% of GSDP since 2004-05.
— Orissa had the highest Debt/GSDP ratio during 2000-03 at 63.7% followed by 40.00% Uttar Pradesh at 47%. The ratio has come down to 34.11% in 2007 -08.
— Revenue Expenditure to GSDP ratio has increased by 5.7% during 2000- 03 only 30.00% next to Gujarat (5.9%). The ratio has come down by 6.8% during 2003-08. — Orissa and Rajasthan had large increases in their IP-TRR ratios at 13.5% and 20.00% 13.2% during 2000-03. Since 2003-04 there has been reduction of this ratio by 52.4% by 2007 -08. The ratio has improved continuously since 2003-04 and at the end of 2007 -08 stands at 14.43%. 10.00% — Expenditure on Salary relative to revenue expenditure (excluding interest payment and pension) was 65.5% for Orissa as against all State’s average of 0.00% 37.7% during 2002-03. The ratio for Orissa is improving continuously to reach 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 to a level of 35.38% in 2007 -08. General Services Social Services Economic Services
Challenges Ahead Sectoral Innovation in Government
— The Additional burden on account of revision of Pay and Pension — Computerization of all Treasuries has put huge pressure on State Exchequer ¡ Improved Budgetary Control — The Global recession has badly affected the State’s Own Tax and ¡ Better Financial MIS Non -Tax Collection. ¡ Real Time Monitoring — The Share in Central Tax has started going down. — Computerization of Tax Administration — Lower level of development of the State necessitates higher Plan ¡ Improved Monitoring Mechanism investment especially on Capital Account. ¡ Better Compliance — Higher Expenditure needs and falling resources may force the State to go for higher Borrowing. For a poor State like Orissa havinga — E-Procurement poor resource base, this will again take the State back to Debt Stress. ¡ Dedicated e-procurement Cell created in Works department — The State needs special consideration in view of good fiscal ¡ Procurements above Rs.20.00lakh is processed through e- performance to continue the development momentum, there is procurement System necessity of intervention of Centre and we need special dispension ¡ Improved Transparency, Accountability and quality of Public from Finance Commission. Expenditure
Contd..
— Zero Based Investment Review ¡ Infrastructure Projects above Rs.1.00crore are taken up on priority basis for completion Assessment by previous FCs and ¡ As on 31.3.2008, 295 projects have been completed under this scheme Actuals — Industrial Sector Reforms
¡ Single Window Clearance Mechanism ¡ PPP Policy announced ¡ Investor Friendly IPR, 2007 introduced ¡ Cluster Development Programme ¡ Development of Sector specific Industrial Parks
4 Assessment of 10th & 11th FC and Actuals Estimation by the 10th FC and Actuals
10th Finance Commission (1995-2000) 11th Finance Commission (2000-05) 30000
Assessment Assessment 25000 by the Actual shortfall by the Actual shortfall Commission Commission 20000
Non-Plan Revenue 15000 Receipt 10626.36 10081.09 545.27 19108.33 18867.54 240.79 Non-Plan Revenue 10000 Expenditure 19778.9 23319.5 -3540.60 37985.79 44403.32 -6417.53 5000
Pre-Devolution NP Rs. in crore Rev Deficit -9152.54 -13238.41 4085.87 -18877.46 -25535.78 6658.32 0 NPRR NPRE Pre-Devolution NP Devolution of Post-Devolution Devolution of -5000 Rev Deficit Central Taxes NP Rev Deficit Central Taxes 8783.41 7888.74 894.67 19026.64 15363.97 3662.67 Post-Devolution -10000 NP Rev Deficit -369.13 -5349.67 4980.54 149.18 -10171.81 10320.99 -15000 NP Rev Deficit Grant 371.74 371.74 0.00 673.60 673.60 0.00 Assessment by Commission Actual
11th FC Assessment and Actual
50000
40000
30000
20000 Basis of Forecast
10000 Rs. in crore 0 NPRR NPRE Pre-Devolution NP Devolution of Post-Devolution NP Rev Deficit Central Taxes Rev Deficit -10000
-20000
-30000 Assessment by the Commission Actual
Basis of Forecast
— Own Tax and Non -Tax Revenue projected to grow at about 10% and 6% respectively. — Expenditure on Salary and Pension forecast made taking into th account the impact of 6 th CPC recommendation. Submission to 13 Finance — Interest Expenditure projected to grow at 7.5% Commission — O&M Expenditure estimated on the basis of recommendations of the Norms committees. — Subsidy on Rice estimated taking into account the impact of Rs.2/- per Kg rice scheme — Other Expenditure in General, Social and Economic Services have been projected with growth rates of 10%, 15% and 15% respectively — Transfer of Committed Liability at 30% of Plan Revenue Expenditure at the end of 11th Plan Period
5 Devolution of Central Taxes Horizontal Transfer
— Population below poverty line represent poverty in a — Vertical Transfer: better manner compared to per -capita income distance ¡ The 13th Finance Commission may consider transfer of50% of hence may be assigned a weight of 50%. net proceeds of Central Taxes to the States. — Infrastructure needs is one of the major challenges for the poor States like Orissa hence may be assigned a weight of ¡ The Commission should lay down clearly the norm for cost of 20%. collection of Union taxes and duties. — Consistent with the overall approach that equity needs to be ¡ In the principle of fair distribution of resources, any surcharge, balanced with efficiency, Orissa is of the view that the index if continued beyond a period of one year, should form a part of of fiscal discipline may be given a weightage of 20%. the divisible pool. — Orissa is of the view that since all other criteria are weighted ¡ Export duty on iron and chrome ore should be passed on by population, there is no need for taking population as fully to the originating State to compensate for pollution, criteria separately. Rather, the social profile of the depletion of natural resources and other negative externalities population i.e. the population belonging to SC & ST category should be assigned aweightage of 10 %.
Horizontal Transfer Grants-in-Aid
— The Grants received as per recommendations of the 12th FC Proposed Criteria for Horizontal Devolution has been effectively utilized by the State. SC & ST Population, — Equalisation grants received under Health and Education 10% Fiscal discipline, Sector have helped in improving the Health service and 20% standard of Education in the State. — Maintenance Grants for Roads, Bridges and Public Building has been of immense use for the State for timely maintenance. — Grant for Heritage Conservation and maintenance of Forest Population below have been utilisedfor the purpose. poverty line, 50% Index of — Grants under State Specific Need have been quite useful for infrastructure , 20% Eco-restoration of Chilika Lake and Sewerage System in Bhubaneswar
Grants-in-Aid Debt Consolidation and Relief Facility Scheme
— Revenue Deficit Grant should be determined taking into account — The debt consolidation and relief facility has been beneficial for both Non -Plan and Plan account. the State Government in progressing towards debt sustainability. — Equalization Grant for Health, Education should continue with higher equalisation of 60% and 30% respectively — On reduction of the rate of interest, the interest expenditure has gone down and the revenue receipt has also gone up on account — This should be extended to other sectors where the State has not been able to spend much because of low fiscal capacity. of the debt relief. — Grants for maintenance of Roads & Bridges, Public Buildings — Moreover, the loan write-off has helped in bringing down the (Including Residential Buildings), Forest, Heritage Conservation debt-GSDP ratio. should continue and should be as per need. — Our State has successfully achieved the required fiscal indicators — Whilethe end use of the grants may be monitored, the matching and availed the debt write-off @Rs.381.90crore during 2005-06 revenue or NPRE by the States may not be insisted upon. to 2007 -08. — Grants may be provided for maintaining the ecological endowment — The State has also been eligible to get the above benefit during — State specific Need and up-gradation grant proposed for Rs.16387.36 crore may be considered favourably. 2008-09 on the basis of the fiscal performance in 2007 -08.
6 Submission to the 13th FC on DCRF VAT and Goods and Services Tax
— Continuance of the debt relief scheme in which the — Since introduction of VAT on 1.4.2005, there has been impressive NSSF loan repayments should also be included. growth rate of about 23% in collection from this source in first 2 — Waiver of 10% of the consolidated debt Stock relating years. to Government of India at the end of each financial — However, there has been decline in collection to the level of about year or writing off 50% of the debt stock relating to 9% during 2007-08 and during the current Financial year due to Government of India at the beginning of the award the impact of Global economic recession, the growth rate will period. further decline. — Lowering of rate of interest of NSSF loans to 7.5% after — The Road Map for the GST is being examined by the Empowered consolidation of the outstanding Government of India Committee of State Finance Ministers. The State may take a view loans including NSSF loans as on 31.3.2010. only on basing on the recommendations of the Empowered Committee. — The interest rate now charged on old EAP loans should be limited to 7.5% instead of 9%. — However, the State’s Taxation power and autonomy should be safeguarded in the GST regime.
Calamity Relief Fund: Grants for Local Bodies
th — The corpus of Calamity Relief Fund for Orissa may be — The 13 Finance Commission may estimate the minimum need based expenditure requirements of the local governments kept at Rs.4000.00 crore for the period 2010-15 with normatively Centre-state contribution at the ratio of 90:10. — At least five percent of central tax collections (besides the — The corpus of the NCCF should be raised Rs.1000.00 horizontal tax sharing) should be devolved infavour of the local crore (i.e. double the size recommended by 12th FC). The governments and following criteria should be adopted for horizontal distribution Commission should define the basis on which funds from Components Criteria Proposed to the 13 th Finance the NCCF should be released in favor of a State needing Commission assistance from the NCCF most. Population 10 Index of deprivation 30 — For Disaster Mitigation, total amount of Rs. 7431.64crore Distance from higher per capita income 40 may be provided for the period 2010-15 . Geographical area 10 Revenue effort 10 Total 100
3rd SFC Recommendations Summary of Projection of Requirements
Item Amount — st The Third SFC in their 1 Report have recommended for transfer (Rs. in Crore) of Rs.4480.85crore to Local Bodies with ratio of 75:25 to RLBs Pre-Devolution Non-Plan Revenue Deficit 132141.64 and ULBs (Rs.3360.64crore to RLBsand Rs.1120.21crore to ULBs) respectively by the State Government and the same is to Maintenance Grants 40572.69 be reimbursed through FC grant in view of the poor Financial Equalization Grant under Education Sector 1032.70 position of the State. Equalization Grant under Health Sector 648.86 — Further, they have recommended to the 13th Finance Commission Up-gradation & state Specific Need 16387.36 for devolution of Rs.8528.07 crore infavour of RLBsand Disaster Management 4000.00 Rs.3453.55 crore forULBs . Disaster Mitigation 7431.64 — Thus the total transfer of fund infavour of the Local Bodies as Creation and Rehabilitation of Environmental Assets 655.50 per recommendations of the 3rd State Finance Commission is Scientific Management of Forests 1450.00 Rs.16462.47 crore (Rs.11888.81 croreforRLBs and Rs.4573.76 Grants to Local Bodies 16462.47 crore for ULBs). Total 220782.86
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