COVID-19 Impact On Odisha: Prioritise Spending, Tap Debt Redemption Fund, Say Experts

Bhubaneswar: The COVID-19 pandemic and the subsequent lockdowns have had a sharp debilitating effect on the economy, which, in turn, is severely affecting the finances of the governments at the Centre and the states, and their ability to intervene in the crisis that we are confronting today.

Poorer states like Odisha are particularly disadvantaged, several economists and former economic administrators have warned while speaking at a webinar organised by the Odisha Alochana Chakra.

Experts such as former Chief Secretary Jugal Mohapatra and former NIPFP professor Dr Tapas Sen said the Government of Odisha had no option but resort to borrowing liberally so that it can meet the needs of the distressed migrant returnees, provide for higher spending on healthcare and continue with its welfare programmes.

As economic activities remained suspended for most part of the April-June period, the Odisha government was seen raising only 60% of the revenues it had budgeted for the quarter. If this trend continues through the rest of the financial year, the government’s revenues in FY20-21 may fall about Rs 49,600 crore, or 40%, of the Rs 1,24,000 crore budget target, said Dr Pravas Mishra, a public finance analyst with Oxfam India.

However, given that restrictions on people’s mobiliy and economic exchanges are being gradually eased, there could be a recovery in the later quarters. Assuming that economic activities and revenue collections return to full normal by October-December quarter, the most optimistic scenario could still leave the state with a revenue shortfall of at least Rs 17,000 crore, or 25%, Mishra said in a report presented at the webinar held on Saturday.

Sen, who has been advising the Odisha government for nearly three decades, said the situation could get even worse than predicted by Mishra if the central government is unable to transfer to the states the money it ought to.

Funds will flow under MGNREGA and some of the central healthcare schemes, but there could be an issue with timely and adequate transfers in other areas as the Centre’s revenue collection is also under pressure.

“We are already witnessing delays in central transfers. Going forward, that could get worse,” said Sen. “It’s a double whammy for states like Odisha, which do not have a big source of their own revenue.”

The solution, according to Mohapatra who was the State’s Finance Secretary for many years, lies in borrowing now and spending with such prudence that the state is able to recover to a higher growth trajectory sooner and thus repay the debt.

Mohapatra said the Government could tap the Debt Redemption Fund that has about Rs 12,000 crore lying in it. Also, it has enough headroom to borrow from the RBI via ways and means advances, as the limit for such loans has been raised to 5% of GDP. That means another window of Rs 22,000 crore in loans is available to the state.

Several political leaders, including Odisha Congress President Niranjan Patnaik and Member of Parliament Bhartruhari Mahtab, endorsed the suggestions made by Mohapatra and Sen.

Mahtab, however, demanded that the Central Government should do away with the conditions it has attached to enhancing the limit on borrowing from RBI. Loans of up to 1% of GDP will be tied to the state’s performace on certain parameters like ease of doing and implementation of select central government schemes.

“These conditions must go. This is not the time for conditions,” Mahtab said. He also suggested that the Centre should explore monetising the vast amounts of land lying idle with the defence ministry and Indian Railways.

Patnaik said Odisha needs to focus on improving its own revenue and reduce dependency on the Centre. He also expressed concern over the Centre’s actions that have curtailed the states’ ability to raise their own revenue. “Odisha must join hands with other states to protect its own fiscal space,” he said.

Odisha Alochana Chakra founder Rajesh Mahapatra said many of the suggestions made at the webinar were pragmatic, relevant and, some of them, out-of-the-box ideas.

Saturday’s webinar was the 7th in a special series – Odisha Post Corona: The Road to Recovery – that seeks to create a blueprint for rebuilding Odisha post Covid. The outcomes will be shared with the government and other stakeholders, Mahapatra said.


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