A thesis submitted to the Indian Institute of Technology Guwahati in partial fulfillment of the requirements for the degree of. Joydeep Baruah, Omeo Kumar Das Institute of Social Change and Development, Professor Saundarjya Borbora, Indian Institute of Technology Guwahati; Dr.
Contents
List of Tables
Government of Assam (` in Lakhs) Table 4.5 Revenue Expenditure of Government of Assam on 124 General Services (` in Lakhs) Table 4.6 Revenue Expenditure of Government of Assam on 126 Social and Community Services (` in Lakhs) Table 4.7 Composition of Revenue -expenses on Economic 128. Primary Revenue Deficit of the State (` in crore) Table 5.5 Debt GDP and Interest Payment Income 175.
Total expenditure and total expenditure of the state 137 Figure 4.6 Per capita expenditure of the state on social services, 139 Economic services and development expenditure per capita.
Abstract
Introduction
- Background of the Study
- Statement of the Problem
- Objectives of the Study
- Hypotheses of the Study
- Data Source and Methodology
- Layout of the Dissertation
This was possible through creative accounting3 on the part of the government in the budget making process (Rao and Amarnath, 2000). State income per per capita is one of the lowest among all the states in India.
Review of Literature
- Experiences of Fiscal Crisis and Reform Measures
- Expenditure Implications of the Fiscal Crisis and Reform Measures
- Revenue Efforts of the Government
- Fiscal and Debt Sustainability of the State
- Conclusion
Desai (2004) opined that the state governments in India should set realistic targets while undertaking fiscal reforms. The author was of the view that higher central transfers had a discouraging effect on the taxation efforts of the state governments in India.
Pattern of Revenue Generation and Revenue Efforts of Government of Assam
Assignment of Revenue Sources in India
Taxes allocated to the central government are found to be more elastic and productive than state taxes. As a result, imbalances arise in the finances of the state governments, necessitating transfer of revenue from the central government (Rangarajan and Srivastava, 2008). In other words, the revenues of the state governments consist of both own revenues from various sources and central transfers.
The difficult geographical terrain also acts as a constraint on the revenue generation capacity of the state government.
Composition and Trend of Total Revenue of the State
- Composition of Revenue of the State
- Share of Different Sources of Revenue of the State
- Ratio between Own Resources and Revenue Receipt
The composition and percentage contribution of the above income sources speaks of the state's dependence on central transfers. The percentage contribution of different components of income of the state is provided in table 3.2. The state's dependence on central transfers remains more or less the same during the study period.
The country's relative dependence on central transfers compared to other states in India is given in Table 3.3.
Different Channels of Central Transfers of the Government of India
- Transfer through Finance Commissions
- Transfer through Planning Commission
- Grants for Central Sector, Centrally Sponsored and Special Plan Schemes
The objectives of the Constitution (Eighty Amendment Act), 2000 was to compile a pool of all central taxes for sharing so that a holistic view could be taken and both sides could share in the total driving force of the central tax revenue (Sury, 2010 ). Under these circumstances, it is necessary to examine the state government's share of the total Finance Commission's transfers. Here percentage share of the state government under each Finance Commission is compared with the average share of the state considering all the twelve Finance Commissions.
The average share of the state was found to be 3.92 percent of the total central transfer to the state by all the Finance Commissions up to Twelfth (TFC, 2009).
Total Own Resources of the State
- Own tax Revenue
- Land Revenue
- Agricultural Income Tax
- State Excise
- Stamps and Registration
- Transport Taxes
- Sales Tax and VAT
- Taxes and Duties on Electricity
- Other Taxes and Duties: The taxes which are not included in the above categories of taxes experienced a compound annual growth rate of 14.9 percent during the period 1990-91
- State’s Own Non-Tax Revenue
The contribution of Land Revenue to total own revenue of the state is provided in figure 3.3. The contribution of Agricultural Income Tax to total own tax revenue of the state is provided in figure 3.4. The contribution of State Excise to total own income of the state is provided in figure 3.5.
The contribution of the sales tax to the state's total own revenue is presented in figure 3.8.
Revenue Effort of the Government of Assam
- Buoyancy of Revenue Sources
- Cost of Collection
- Arrears of Revenue
- Cost Recovery of Social and Economic Services
The costs of collecting various state taxes and duties are listed in Table 3.14. The cost of collecting taxes and duties of the country compared to the average of all countries is shown in Figure 3.11. The arrears of state revenues as a percentage of total own revenues are shown in Figure 3.12.
Similarly, the state's medical and public health cost recovery is found to be lower than the average of all states during the study period.
Panel Regression Analysis of Revenue Effort of the State Government
The above discussion gives an idea of the state government's efforts to mobilize more revenue. Petroleum royalties have contributed an average of 75 percent to the total non-tax revenue of the state government. Considering the above fact, own tax revenue per capita is taken as a dependent variable of the model.
GSDP per capita (X1): GSDP is considered the main determinant of the tax revenue of a government.
Composite Index of Resource Mobilisation
Considering the above aspect, a composite income index has been calculated on the basis of the following parameters. The maximum observed value of the parameters during the study period was taken as the maximum or goal post value. Since the geometric mean is used for clustering, natural zeros are used as a minimum parameter value.
The dimension index for each of the parameters was calculated by applying the above formula.
Conclusion
The average costs of collection of various state taxes are also found to be higher than the all-India average. The coverage of the cost of social and economic services of the state turns out to be much lower than the average of all states. Education cost recovery is also found to be lower for the state than the statewide average for most of the years considered for analysis.
Overall, the revenue scenario of the state turns out to be satisfactory over the last few years.
Pattern of Public Expenditure and Expenditure Implications of Fiscal Reform Measures
Expenditure Responsibilities of the States and Central Government in India
The Seventh Schedule (Article 246) of the Constitution lays down the respective financial resources of the Union and State Governments of India. In other words, the state governments in India have to play a significant role in a number of areas that are essential to enhance the growth and development of the state. Through its investment in social and physical infrastructure, the state government must remove the bottlenecks that hinder the state's development.
Under these circumstances, it is necessary to analyze the trend and pattern of public expenditure of the country during the period under consideration.
Trend and Pattern of Total Expenditure of the State
In addition, a wide fluctuation was noted in the annual growth rate of total expenditure during the study period. It is necessary to trace the reasons for these fluctuations in the total expenditure of the state. During the first decade of the present century, the average ratio of total expenditure-GDP of the state was found to be comparatively higher than the previous decade.
The total expenditure-GDP ratio of the state during the study period is given in figure 4.1.
Pattern of Total Expenditure in Assam
- Pattern of Revenue Expenditure
- Pattern of Revenue Expenditure, General Services
- Pattern of Revenue Expenditure, Social and Community Services
- Pattern of Revenue Expenditure, Economic Services
- Pattern of Capital Expenditure
- Composition of Capital Outlay on Different Services
Annual and compound rate of growth of the components of total state expenditures (in percentage). The amount of revenue expenditure for various economic services of the state is presented in table 4.7. This ratio of capital expenditures to state capital expenditures is also shown in figure 4.4.
It contributed an average of 42 percent of total capital expenditure on economic services during the study period.
Quality of expenditure of the State
- Adequacy of Public Expenditure
- Efficiency of Government Expenditure
It is found that the difference between the ratio of development expenditure to total and aggregate expenditure of the country is decreasing during the study period. State expenditures for social, economic and development expenditures per capita are given in table 4.12. State expenditures on social services, economic services and development expenditures per capita per capita are also shown in Figure 4.6.
The expenditure on these three items constitutes a major part of the revenue expenditure of the state government.
Expenditure Implication of Different Fiscal Reform Measures
- Agreements with the Central Government
- Fiscal Responsibility Legislation: A major fiscal development of the state of Assam in terms of fiscal reforms was the adoption of the Assam Fiscal Responsibility and the Budget
- Consolidated Sinking Fund: Another important fiscal development for the state was that in line with the recommendations of the Twelfth Finance Commission, the state
In the year 2008-09, dedicated expenditure accounted for 49.07 per cent of the revenue receipt and 62.28 per cent of the revenue expenditure of the state. Under these circumstances, it is necessary to analyze the role of those reform measures in controlling expenditure of the state government. Considering the gravity of the problem, the central government has urged the state government to introduce new pension scheme.
The reform measures must ensure that there is no lack of funds for various expenditure responsibilities of the state.
Composite Expenditure Management Index (EMI)
Considering the above fact, a composite expenditure management index has been calculated which includes some of the important dimensions of expenditure management. But in the case of the ratio of interest payments to revenue receipts, the state whose performance appears to be the worst is given the maximum value of 1. A slight improvement in the value of the indices has been observed in the 2005-2010 sub-period compared to the previous part period.
The country's poor performance was due to the fact that the ratio of development expenditure to total expenditure, investment expenditure to total expenditure and own funds to revenue expenditure was low compared to other countries.
Conclusion
Increase in government development expenditure during the study period implies that more resources are available for social and economic services. However, a decline in the ratio of development expenditure to total expenditure as well as development expenditure to total government expenditure has been observed during the study period. The average ratio of development expenditure to total state expenditure is found to be greater than the average for all states during the study period.
This implies that the overall expenditure management of the state is comparatively low than other developed states in India.
Fiscal and Debt Sustainability of the State
Theoretical Framework for Examining Fiscal and Debt Sustainability
The above equation implies that for public debt solvency, the interest rate on public debt must be equal to the growth rate of public debt. Apart from solvency, it is also necessary to examine the conditions for public debt sustainability. Domar model concludes that for solvency and sustainability of public debt the following condition must be met i.e. growth rate of public debt (k) ≤ interest rate on public debt (r) <.
It is also necessary to determine the conditions for public debt sustainability when the interest rate on public debt is greater than the GDP growth rate.
Fiscal Sustainability of the State
- Trend and Pattern of Revenue Deficit in Assam
- Composition and Trend of Fiscal Deficit in Assam
- Financing Pattern of Gross Fiscal Deficit
- Trend and Composition of Primary Deficit and Primary Revenue Deficit
The fiscal deficit as a percentage of the state's GSDP during the study period is also shown in figure 5.2. The various sources of financing the central government's gross budget deficit are listed in table 5.3. But the huge fiscal deficit in 2009-10 has again raised the question of the state's fiscal and debt sustainability.
Trend and Composition of Central Government Primary Deficit and Primary Revenue Deficit (```` in Crore).
Sustainability of Public debt in Assam
Time series data on outstanding liabilities, debt-to-GDP ratio and interest payments-to-revenue ratio of the state government are given in Table 5.5. Ratio of outstanding liabilities, debt to GDP and interest payments to state revenue (```` in crore). It is evident from table 5.5 that the outstanding liabilities of the state government have increased from `4341 crore in 1990-91 to ``27385 crore, thus registering a compound annual growth rate of 10.18 percent during that period.
