INTRODUCTION The Term of Reference of the Tenth and Eleventh Finance Commission included consideration of the requirements of States for up- gradation of standard of administration in non-developmental and social sectors and services. Mizoram had considerable benefits out of the recommendations of these two Commissions. Thanks to these specific references, much needed infrastructure like Lengpui Airport, the only airport in the State and the new Secretariat building could have been created with fund made available by the Commissions. Although the term of reference of the Twelfth Finance Commission did not include this consideration, the Commission in its wisdom provided fund to tackle State’s specific need, namely a scheme to tackle bamboo flowering and its resultant increased in the population of rodents, which devastated crops in the fields that led to famine like situation in the State. While we are obliged to express our gratitude, we nevertheless have to point out that the Twelfth Finance Commission had turned down major portion of our proposals. Even though the term of reference of the Thirteenth Finance Commission does not include this issue, it is our prayer and hope that the Commission in its wisdom will consider grants to tackle State’s specific needs on the basis of our just and reasonable demands. In fact, this time, we are very optimistic that the Thirteenth Finance Commission favourably considers our proposals. In this connection, it may be pointed out that the State Government is facing financial problem in taking up plan schemes available with the Government of India due to its inability to set aside huge amount of fund to be used as State’s matching share. Hence, special grants made 1 possible by the Finance Commissions have become vital for a poor and newly created state like Mizoram which is lagging behind all other States in respect of infrastructure. ABSTRACT OF THE PROPOSAL Sl. Proposals Cost No (Rs in Crore) 1. Establishment of Fiscal Affairs Center Rs.18.71 2. Project Proposal for Reconstruction of Rural Economy Rs.1200.00 3. Infrastructure development schemes for the three Autonomous District Councils (Lai, Chakma and Mara) Rs.87.96 4. Infrastructure for newly created Civil Sub-Divisions Rs.25.358 5. Improvement of Jail administration Rs.49.40 6. Project proposal for improvement in Hospital & Medical services Rs.16.54 7. Project Proposal for construction of buildings for Treasuries Rs.3.832 8. Construction of buildings for Office, etc for Excise & Narcotics Department Rs.7.805 9. Project Proposal for construction of office building for Directorate of Institutional Finance & State Lottery Rs.2.39 10. Pilot Project for rainwater harvesting scheme Rs.8.51 GRAND TOTAL: Rs. 1420.505 Crores 2 ANNEXURE TO MEMORANDUM 1 ESTABLISHMENT OF FISCAL AFFAIRS CENTER Cost of the Project: Rs.18.71 Crore 3 ESTABLISHMENT OF FISCAL AFFAIRS CENTER AT AIZAWL UNDER THE FINANCE DEPARTMENT Cost of the Project: Rs.18.71 Crore 1. Rationale: On page 25 of our main memorandum, we have mentioned that the possible step towards ensuring the quality of expenditure (as per the para 6 (vii) of the Term of Reference) would be building capacity in outcome budgeting or performance budgeting together with the project appraisal even at hand holding level at the State level. This issue of capacity building needs to be carefully examined by the Commission since it has relevance with the fiscal consolidation process of the State. The secular growth of the economy in the last four years have contributed to higher tax buoyancy and higher devolution from the Centre as well as higher realization of the State’s own revenue receipts. While the revenue deficit correction had been largely revenue driven, expenditure rationalization and contraction have not made significant headway. As a natural corollary of the business cycle and present global melt-down there has been some discussion as to how effective a rule-based fiscal regime can be in the event of down turn of the economy or slower pace of economic growth especially when the negative and unavoidable effect have adverse impact on the ability of States to meet fiscal performance targets while maintaining development funding. Though the Government of Mizoram, so far, has been on tract of the fiscal correction path, the fiscal stabilization could still require sustained efforts. Mere rationalization and contraction of expenditure would not lead the State to the desired goal. Better service delivery and ensuring quality of expenditure together with efficient expenditure management accompanied by skill of revenue projection would put the State to meet the future eventualities on a sustainable basis. At the State level, there is still inadequate capacity for managing public finances which constraints 4 the implementation of sustainable programmes as well as the conversion of fiscal intent into fiscal output, outlays into outcomes. Side by side, it is now felt for considering a fiscal correction path that is more than just a series of fiscal metrics but, a fiscal framework that would be based on two key factors to enable an objective ex post facto evaluation of fiscal performance while at the same time ensuring an accountable and credible fiscal policy. These two factors would be: (1) fiscal rules to ensure sustainability while allowing short-run flexibility; (2) a multiyear spending framework that sought to increase predictability and stability by allowing the automatic stabilizer to operate in response to cyclical variation. Together, these factors would provide the State Government with the opportunity to control expenditure in a customized fashion while doing so in a medium Term Expenditure Framework as an effective tool to control the expenditure linked to revenue expectations and exogenous shocks. The urge of creating a Fiscal Affairs Centre as a creature to aid the policy decisions and monitoring at the State level has, therefore, emanated from the above apprehensions. 2. Objectives: The Fiscal Affairs Centre (FAC) is considered to be one of the key institutional structures for promoting informed decision making within the State Government and is expected to directly support the Department of Finance in their fiscal analysis and policy inputs. Its primary mandate is to evaluate, on a continuous basis, immediate, medium term and long term impact of fiscal policy, procedural and regulatory decisions on the mobilisation, allocation and utilisation of public resources. Depending on the perceived needs, among others, it may undertake the following tasks: • Promote Greater Analysis: Support a priori and ex post facto analysis of longer term development perspective and distributional issues and the role of fiscal policy to promote broad based economic growth. 5 • Data Management: Identify, develop, maintain and update necessary database and information systems. Provide guidance in developing appropriate management information systems to help integrate fiscal operations across departments. • Forecasts and Projections: Make forecasts and monitor fiscal trends to facilitate early warning. Develop and revise baseline information. • Facilitate and Promote dialog: Create forums such as networks, round tables, workshops, seminars and training programmes to share analytical tools and techniques and documents for both state level and national level fiscal issues. • Outsource Expertise: Act as consultant and resource experts to other departments in fiscal matters. Help build fiscal analytical capacity in other departments. Support the third tier of the Govt. for information and analysis if needed. Assists in drafting/updating manuals and guidelines. 3. Modus operandi: The issues to be dealt by the FAC need sophisticated tools and techniques as well as skilled man power. Initially these techniques and tools could be acquired through implementable national and international best practices. Initially the service of the experts would be hired for a specific period to provide hands-on training and guidance to the selected officials to create a batch of trainers who would subsequently be utilised for providing such techniques and services as per the need of the state Govt. and to guide and train man power across the departments. This procedure has been found effective in India as well as in abroad. 4. Proposed Area of Interventions: The possible themes of interventions are underlined below. However, these are not exhaustive and the menu may be enlarged and demand driven. 6 i. Performance Budgeting : There is an increasing budgeting focus around the States not only in doing a better job of forecasting and managing the fiscal aggregates (revenue and expenditures), but also in ensuring that the government is getting good value for the money it spends. Two of the key elements in determining the value for money focus are correctly determining the level of service the government can afford and ensuring that the government delivers its public services efficiently and effectively. A key internationally recognized factor in slow economic growth is inefficiency in public institutions. Inefficiency in government may result from slow and bureaucratic procedures, duplication, lack of transparency, and ineffective governmental programmes. Inadequate resources allocated to budget planning, evaluation, and analytical studies of policy options can result in spending that is inefficient and not in line with the preferences of either the government or the state’s citizens. Using modern budgeting such as a Programme and Performance