Bleak Future of Manipur
By Dr. R.K.Nimai
Manipur has come out from Overdraft (OD) after receipt of the share of central taxes and a sum for some specified works. The state is just above the water and with the payment of salary and pension on the 1st of July it will again go to OD and even with the receipt of the Revenue Deficit Grant (RDG) in the first week of July going to OD can’t be stopped. To manage the cash, the state government has no alternative but to restrict expenditure, even for those releases which are tied to specific works. This will result in non expenditure leading to non submission of utilisation certificate and then non release of subsequent instalments, a vicious cycle.
It has been mentioned that nearly Rs. 800 crore have been approved for Open Market Borrowing (OMB) and the first tranche will be to the tune of Rs. 400 crore which will wipe out the OD figure and the financial position of the state will become much better and expenditure can be made on central schemes for which money have been released and received. The only problem is that OMB is meant for development works and not to meet the exigencies of financial hardship. The OMB is indicated as Manipur State Development Fund, which clearly shows that it is meant for development works. When the OMB is utilised for meeting the financial gap, it has no return and thus repayment will become difficult. If the amount collected as OMB is invested properly, there will be return in terms of social, economic and financial making repayment easier. The limit as mentioned by our political leaders does not indicate whether it is the gross amount or the net. Normally, the repayment on account of OMB is met from the fresh borrowing and thus only the net is available to the state for its utilisation. The utilisation of OMB to meet the financial gap does not improve the financial health but rather only postpone the inevitable of becoming bankrupt.
There is a provision under Article 360 of the Constitution for declaration of financial emergency, which till now had never been invoked. During the early eighties, there was a move to declare as such in respect of Manipur but as the implications are many and fraught with danger, rather than invoking this Article, the Centre provided some grants to bring the financial health of the state to an acceptable situation. During those days, the amount involved is a few crore. Now the financial involvement will be in hundreds of crore; and with the Centre also not in a good financial position such grant may not be forthcoming. Thus the chances of a bailout are considered remote.
With the 14th Finance Commission (14FC) recommending 42% of the Central taxes for devolution, the Centre has limited kitty to support the states towards their financial management. Besides, the Centre is becoming more autocratic in its functioning and centralising its power rather than decentralising the same. This is being brought about by dangling support as the carrot to those states which are financially weak. One may remember the method adopted by the centre to bring Education under the Concurrent List of Schedule 7 of the Constitution from being under the State List. The centralisation of power can be seen from the number of central schemes which now numbers more than 135. India is a vast country and it is not feasible to have a uniform template for all the states. Each state and even district has their own unique problem and solution and therefore implementing the central scheme in toto without local adjustment is a sure recipe for failure. In the early part of this century, there was a scheme for providing drinking water in schools where the storage is to be made of brick and cement mortar. In a village in Churachandpur which is very remote and inaccessible to vehicle, every item from brick to cement to sand has to be brought by head-load. A request was made to change the specification to plastic storage tank, which was denied. The option was either not to construct or to use plastic storage tanks. The latter option was chosen by manipulating the records, which forces officials to do manipulation to ensure delivery of services rather than not providing the service at all. On other words, the scheme should be flexible enough to adapt to the local environment. Further in many of the schemes, the rates for specific items were fixed which makes it impossible to execute the work as the cost is much higher in Manipur. To reiterate, centralising the power with a view to have a strong federal government does not bode well for the development of the nation, especially in those states which are financially not strong and this may be the root for balkanisation. All development works are under such schemes, which after spending huge amount do not provide the concomitant benefit to the people.
Manipur is one of the least taxed states in the country. Our State Own Tax (SOT) hovers around 3% of the State Gross Domestic Product (SGDP) against the All India Average of 6.6%. Even this 6.6% is low taking into the collection in other countries. With such type of collection it will be futile to think about self-sufficiency. Thus the priority of the government should be to undertake a scientific and systematic study by a competent agency towards a better SOT:SGDP ratio. It should not go like it was done in the case of Land Revenue which increases the rates by 500 to 700%, which was found to be in violation of the Rules and the Rules have to be hurriedly revised to permit the changes. Administration of tax is a serious business and it does not follow the logic that doubling the rates could double the collection. If the rates become too high there will be tax evasion which was seen during the early eighties in Income Tax. This may not happen in land revenue as the landowners and the amount due to clearly known but in other taxes evasion is always possible. The GST regime does away with the flexibility the state government had in manipulating the tax rates to their advantage. Now this is no longer possible as there is a single rate for each item all across the country. After the implementation of GST, there is a rise in the SOT, but that is not enough and therefore there is an urgent need to mobilise additional resources failing which the state can never come out from the vicious cycle of ban of encashment and opening. It may be a headline whenever, the ban is imposed or lifted as was done in 1999-2004. It would not be proper at this juncture to suggest any change in the tax regime till, as suggested above a systematic study by a competent body is carried out. Taxation is a complicated matter with various linkages and ramifications and any change in a place can impact on other areas and thus a holistic approach is essential. A piece meal approach will never have the desired effect.
The management of the finances of the state is extremely difficult but the laws regulating it must be followed. The Manipur Fiscal Responsibility and Budget Management Act, 2005 must be always kept in mind while not only preparing the budget but even while sanctioning funds within the budget. The fiscal targets set therein of maintaining revenue surplus, bringing down the deficit to 3% of the GDP, limit state guarantee and bringing down the salary and pension bill to 35% of the revenue expenditure. These are tall order, especially when the budget for 2019-20 closes with a deficit of Rs. 1889 crore, the fiscal deficit to GDP being 6.59% and the salary and pension constitute 65% of the revenue expenditure. The deficit indicate that there is a need of an additional amount of Rs. 1889 crore to meet the projected expenditure. No surprise that the RBI had imposed the ban on encashment. In fact, one should thank the Election Model Code of Conduct that the ban did not come in April itself.
The tendency of recruiting left and right must be stopped outright and the minimum staffs required only are kept in the roll. Work of temporary or of intermittent nature must be carried out through outsourcing. Private sectors are much more efficient and capable in many aspects. Such advantage must be taken so that there is a win-win situation for all stakeholders. A work study must also be carried out to determine the optimum manpower required for each and every office. Without pointing fingers to anyone, even if 50% of the existing staff is trimmed, the work as it is now can still be performed. There is huge surplus staff and the flab ought to be trimmed; subject to that no retrenchment takes place and vacancies are not filled up.
The fiscal health of Manipur is in the worst situation and if timely intervention is not carried out, Manipur can become a failed state. What it need is not an obese bureaucracy but a trim but responsive one. There must be audit of the cost effectiveness of every department. It needs drastic measures, if Manipur has to survive. It should be made to understand that if the situation is not reversed, financial emergency may be the outcome which may entail reduction in the salary rather than giving 7th Pay Commission pay scales! All choices are hard choices and there is no easy option.
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