36.97K Cr For Odisha In Budget 2022-23 As Pandemic Stress On Centre's Earnings Eases

With an apparent buoyancy in the total revenue receipts of the Centre, where the revised estimates show an increase in the total tax receipts by over 16 percent and a projection of 6 percent rise in net revenue receipts in 2022-23, Union Finance Minister Nirmala Sitharaman in her fourth budget presented today has upped the net amount of taxes and duty transferred to Odisha.

As per the Budget document, Odisha will receive a sum of Rs 36,977.88 crore as a share of the net proceeds of Union taxes and duties in 2022-23. The amount estimated in the Budget 2022-23 has been the highest since the pandemic year 2020-21.

However, the estimated transfer of net proceeds of Union taxes and duties in 2022-23 has been lesser than the amount of Rs 37,559.95 cr in the budget estimates of 2019-20.

While the above comparison shows the impact of the pandemic on the Central tax devolution to states, including Odisha, in the upcoming Financial year 2022-23, the bitter fact for the State has been that the actual devolution in 2019-20 had been far lesser than the BE earmarked.

Central Tax Devolution To States - A Reality Check

A look at the Union Budget documents since 2017-18 gives a reality check on how volatile has been the distribution of the Central tax proceeds to Odisha over the years.

• In 2017-18 BE, the net proceeds of Union taxes and duties to Odisha had been Rs 31,421.67 cr.
• In the 2017-18 Revised Estimates (RE), the amount had been revised to Rs 31,272.03 cr.
• The actual transfer to Odisha in 2017-18 had been Rs 31,499.88 cr.
• In 2018-19 BE, Odisha share in Central tax and duties proceeds had been Rs 36,585.93 cr.
• As per the RE for 2018-19, the State's share had been estimated lower at Rs 35,353.73 cr.
• And the actual devolution in 2018-19 to Odisha had been put at Rs 31,477.23 cr.
• The significant mention here is the country had undergone a spell of economic slowdown in the year 2018-19 that had impacted revenue receipts of the Centre - both tax and non-tax. As a consequence, the Centre slashed the devolution amount to all states, including Odisha.
• In the BE of 2019-20, the Union taxes and duties' net proceeds share in Odisha's kitty had been Rs 37,559.95 cr.
• In the RE for FY 20, Odisha's share had been reduced to Rs 30,453.25 cr.
• But when it comes to actual devolution, the amount stood at Rs 30,136.68 crore.
• Then looms the shadow of Pandemic over India. Lockdowns and shutdowns became the new normal.
• In the BE of 2020-21, the share of Odisha in net proceeds of Union taxes and duties had been put at Rs 36,299.74 cr. (Pandemic struck India in March, Budget tabled on Feb 1, 2020)
• The RE for the financial year then slashed the devolution amount to Odisha sharply to Rs 25,459.63 cr.
• And the actual devolution amount to the State had been put higher than the RE at Rs 28,507.28 cr.
• In the BE of 2021-22, the Central devolution of taxes and duties shared with Odisha had been Rs 30,136.68 cr
• As per the RE of 2021-22, the amount of Union taxes and duties devolution amount to Odisha had been estimated at Rs 33,696.67 cr, after adjustments made over the previous year's shortfall.
• In the BE of 2022-23, the Union FM had earmarked an amount of Rs 36,977.88 cr for Odisha.
• After the above number-crunching exercise, it seems now it is worth to wait and watch to know the actual devolution in the coming year. Because, except for 2017-18, the actual transfer to Odisha had been less than the budgeted amount.        

How It Impacts?

Since the devolution of Central taxes and duties were done in accordance with the recommendations of the 15th Finance Commission (FC), the details available with the FC reveal that Odisha is entitled to receive a transfer of Rs 1.912 lakh crore during the award period of 2021-26.

And the transfer to Odisha will be done as per the State’s share of 4.528 per cent in the divisible pool of Central taxes and Duties (41 per cent of central taxes and duties come under the divisible pool).

Moreover, the distribution mandated by the 15th FC is based on the financial resources needed by the State to carry out its development programmes.

A detailed look shows that during the awarded period of 2021-26, Odisha, on average, would receive an amount of Rs 38, 259 crore per year – which means for the development programmes of the State, the 15th FC has awarded Rs 1,14,777crore to Odisha for the fiscal years of 2021-23.

As the transfers from the Centre to states are guided by buoyancy in Central revenue receipts, and with the chequered events like economic slowdown and pandemic blows, Odisha could see the devolution of over Rs 70,674crore, which points to a shortfall of Rs 44,103 cr during the two fiscal years of 2021-22 and 2022-23.

Why Are Central Transfers Vital?

As per the 15th FC data, Odisha could end up in revenue deficit if the State’s own tax and non-tax revenues are alone taken into account. However, post the horizontal distribution of Central taxes, Odisha records a revenue surplus.

“There will be pressure on the State Finance Minister to fund State’s development programmes following the shortfall. But Odisha will not record a revenue deficit. The gap in 15th FC estimates and actuals may lead to higher market borrowings by the State, and that could lead to a rise in total debt stock of the State,” explained former XIMB Prof Niraj Kumar.

It needs to be mentioned here that the cumulative debt stock in Odisha will cross the Rs1 lakh crore mark by the end of Match this year. As a proportion to GSDP, the debt stock is currently at around 16 per cent.