2003-2004 Budget Speech

SPEECH OF SHRI OKRAM IBOBI SINGH
CHIEF MINISTER (IN-CHARGE FINANCE)
"INTRODUCING THE DEMANDS FOR GRANTS 2003 – 2004(MARCH 2003)"

Mr. Speaker Sir,

I rise to present the Budget of the Government of Manipur for the year 2003-2004. I also lay on the table, the Revised Estimates for the year 2002-2003 and the Demands for Grants for the year 2003-2004.

2. Mr. Speaker Sir, the fiscal crisis that the State went through was at its peak in 1999-2000 with an exorbitant fiscal deficit of (-) Rs. 643.87 crores constituting 22.35% of the Gross State Domestic Product (GSDP). The State managed a surplus on the revenue account until 1998-1999. However, the situation was eclipsed in the following year 1999-2000 when revenue account deficit shot up to (-)Rs. 278.07 crores. The sharp erosion has been checked and the situation has improved appreciably to (-) Rs. 161.18 crores in 2001-2002. Correspondingly, the fiscal deficit has also been reduced from the maximum in 1999-2000 to (-) Rs. 340.32 crores in 2001-2002.

3. The impact of the fiscal crisis cannot be confined to financial matters alone. Its ramifications manifest in all key sectors involved in effective governance. In particular, the financial malaise has reduced augmentation of physical and social infrastructure which are necessary for growth and development. Mr. Speaker Sir, since my assumption of office a year ago inheriting the above legacy, my Government has been consistently striving to alleviate the situation by diligently pursuing the reform measures already initiated by my predecessors following the first Memorandum of Understanding (MoU) of 19th April, 1999 as well as by introducing fresh initiatives for augmenting revenue from tax and non-tax sources, on the one hand, and by taking even some extreme measures for expenditure compression, on the other. All the measures conceived and implemented are consistent and compatible within the broad fiscal restructuring programme envisaged by the Government. Extreme measures, such as, downsizing of the bureaucracy, ban on direct recruitment, abolition of the die-in-harness scheme etc. which hurt the public sentiment had to be resorted to, as immediate measures in a critical situation.

4. The first MoU was followed by a Medium Term Fiscal Restructuring Policy (MTFRP) to fulfil the requirement of the Eleventh Finance Commission (EFC) for accessing the Incentive Fund earmarked by the Commission. The MTFRP laid down the road-map for the second MoU entered into between the State Government and the Government of India on the 20th June, 2002. This was by way of further consolidation and strengthening of the reforms process.

5. Shortly thereafter, in July, 2002 the State Government brought out a White Paper on Manipur State Finances and which was laid before this august House with the objective of bringing out the factual position and as a basis for informed debate about the fiscal correctives that must be pursued in the future.

6. The study on “State Fiscal Reforms in Manipur” commissioned under the chairmanship of Dr. Ashok Lahiri in 2001 while he was the Director of the National Institute of Public Finance and Policy (NIPFP), New Delhi has been submitted and the Report is presently under examination.

7. Mr. Speaker Sir, in all fairness, my predecessor Governments in more recent years have all been aware about the nature of the financial crisis afflicting the State and have been quite unanimous about the need for introducing fiscal reforms to improve the situation. The chain of reform measures taken up beginning with the MoU of April, 1999 till the advent of Dr. Ashok Lahiri’s Report may be deemed as a holistic package indicating the road-map for carrying out fiscal restructuring of the State. Mr. Speaker Sir, I intend to vigorously implement, supervise and monitor the progress of the reforms that has been set in motion.

8. The fiscal profile of the State has been comprehensively discussed in the White Paper. It was identified that the root cause of the current imbalance in the fiscal structure was the disproportionate charge for payment of salaries, pensions and debt servicing which cannot be met from non-plan receipts exclusively meant for meeting these unavoidable obligations. This peculiar shortfall which has been referred to as the Core Gap steeply escalated from (-) Rs. 83.61 crores in 1998-1999 to (-) Rs. 603.14 crores in 1999-2000. It has now been brought down to (-) Rs. 300.19 crores in 2000-2001 and (- )Rs. 246.93 crores in 2001-2002 (pre-actual). The situation, however, persists and is a cause for concern.

9. The Balance from Current Revenues (BCR) projects the entire picture under non-plan revenue account. It captures the total of the non-plan revenues and the total of the non-plan expenditures of the State. The status of the BCR is critical in the determination of the Annual Plan size. A positive balance enhances the plan size and vice-versa. The size of the Core Gap is the principal component of the BCR. Therefore, corresponding to the trend of the Core Gap cited above, the BCR also soared from (-) Rs. 161.84 crores in 1998-99 to (-) Rs. 671.39 crores in 1999-2000. The position has now improved and the BCR stands at (-) Rs. 336.75 crores in 2000-2001. Thus, the close relation between the size of the Core Gap and the BCR is apparent. It implies that the main culprit for the fiscal distortion is the commitment for disproportionate payment of salaries, pensions and debt servicing. Our corrective policies and programmes should, therefore, have a major thrust in rectifying this fundamental distortion.

10. However, a telescopic and short-sighted approach addressed solely to balance the budget and wipe out fiscal deficit beyond a tolerable limit will not be wise. We should not get trapped in a low level equilibrium. Larger issues have also to be addressed to ensure generation of employment, augmentation of social and physical infrastructure, overall growth of GSDP contributed by a proper mix of agriculture, manufacturing and tertiary sectors, etc.

11. Hon’ble Members will agree that the more advanced States benefited handsomely from economic liberalisation that was ushered in across the country during the last decade. Disadvantaged States like Manipur were bypassed being sub-optimal destinations for private investment. Fiscal reorientation will, therefore, have to account for the infirmities that inhibit the State from becoming a preferred destination for private investment, so essential for attaining a higher growth trajectory experienced by the progressive States.

12. Hon’ble Members will agree that evolving an effective growth strategy of the State in the background of its geographical location, ethnic diversity, current backwardness, etc. is in itself far from easy. However, it is further complicated by the factor of insurgency which has to be addressed with equal seriousness. My Government recognise the need for pursuing a broad-based and multi-pronged strategy and will wholeheartedly strive towards this end. However, I shall confine myself to the economic issues that confront us here.

13. Mr. Speaker Sir, in the above background, the avenue for employment in the government and the public sector is getting steadily eroded. This has partly contributed to the soaring of unemployment estimated to have been 4.10 lakhs in January, 2002. The only alternative for tackling the problem of unemployment, therefore, lies in generation of larger employment in the private sector. Government expenditures will, therefore, have to be targeted to improve the infrastructure particularly in relation to surface communications, telecommunications and power, so that private entrepreneurs are attracted for higher rates of investment.

14. Besides providing improved infrastructure, the educated and even the uneducated unemployed youth as well as the rural sector should find adequate access to resources for investment. There is obviously little resources available with the Government for fulfilling such obligation. It has, therefore, become imperative to encompass the financial institutions within the scope of the fiscal reorientation by bringing them closer to those who are starved of resources for investment but otherwise fulfil the pre-requisites for credit. The credit institutions have not been very forthcoming in fulfilling their obligations for providing credit in the State primarily due to the poor law and order situation as also abysmal rates of recovery on loans. The Government of India, RBI, NABARD and the State Government have strongly urged the banking community for higher flow of credit in the State. Recognising the importance of delivering qualitative and quantitative credit on time, the State Government has taken corrective steps for rehabilitation of the Manipur State Co-operative Bank. It is noticed that overall there has been some improvement in the off-take of credit in recent years in the State. The quality of the credit is, however, required to be increasingly diversified from that of consumption to that of investment. Perhaps, it is a testing of troubled waters. Nevertheless, it is a welcome indication, and it is hoped that the trend will accelerate in the coming years.

15. To lend a direct impetus to our endeavour for employment generation, the State Government has availed Additional Central Assistance of Rs. 10.00 crores from the Planning Commission during the current year for generating self-employment. The outlay is being planned to be linked up with bank credit.

16. Pertinent to our commitment for improving the credit environment in the State, I propose to fulfil a long-term demand of the financial institutions for a legislation to enable more effective recovery of outstanding loans by introducing the Manipur Public Demand Recovery Bill, 2003 in this Session. The Bill will give teeth not only for recovery of outstanding loans of credit institutions but also of the array of Government dues such as Land Revenue, Motor Vehicles, Power Tariff, Water Charges etc. I urge the Hon’ble Members to pass the Bill during the current Session.

17. Mr. Speaker Sir, the prolonged famine of credit is the catalyst for the mushrooming financial institutions of all hues in the State which are in general referred to as Non-Banking Financial Companies (NBFCs). These are companies that are normally allowed to undertake lending operations from the resources pooled from amongst the members of the company but are otherwise prohibited from accepting deposits from the public. It has become necessary to frame an appropriate legislation to protect the interest of the depositors and regulate the activities of these companies. I, therefore, propose to introduce “The Manipur Protection of interest of Depositors (in Financial Establishment) Bill, 2003” in the next Session of this august house.

18. Mr. Speaker Sir, an important aspect of the reforms is to ensure the effectiveness of Government expenditure. It has been enshrined in the second MoU that it is equally important to ensure proper end use of funds that are dedicated for augmentation of social and physical infrastructure. The Lahiri Commission’s Report has pointed out the absence of a consistent and robust relationship between GSDP and Government expenditure. The missing multiplier in the effectiveness of Government expenditure in the State’s economy has been adduced to two possible explanations. First, a high ‘import-intensity’ of consumption, with a large proportion of both private as well as public expenditure being met out of goods services bought from the rest of the country. Second, leakages on account of terrorism-related extortions and corruption. Funds siphoned out through terrorism-related extortions or corruption result in ‘actual’ expenditure being substantially less than the reported expenditure. Reported expenditure siphoned out through such unholy channels get parked outside Manipur or used in counter-productive ways and fails to impart any impetus to either capital formation or to the growth momentum in Manipur.

19. Mr. Speaker Sir, the discovery of the missing multiplier is both profound and timely. It implies government expenditures that have been incurred in the past have been appreciably neutralized. It, therefore, reflects directly on effective governance. Effective measures to check leakages due to extortion and corruption is crucial. The effect of insurgency on development is gross and all-pervasive as it creates uncertainly and a sense of insecurity, and imposes a barrier to entry of the private sector to invest by undermining effective governance and eroding the credibility of the State. I, therefore, appeal to the Hon’ble Members and all the citizens of this State who have the good of the people of this State at heart, in whatever way or style they are working for the people of this State, to foster unshakable commitment to the cause of curbing the distortions arising out of insurgency.

20. Power sector reforms is conceived as an integral component of fiscal reforms as the performance in the power sector, particularly the discrepancy in the expenditure for the annual purchase of power and the recovery of user charges annually have become alarming. This discrepancy is proving to be a huge drain on the State’s resources. Although, no net impact on the overall finances of the State is expected, the State Government has made necessary budgetary allocations for clearance of power dues of Government Departments. This is to fulfil the role of the Government as a model obligation for payment of power dues to help improve resource mobilization and facilitate improvement of the quality of power supply in the State, so that it may in its turn facilitate economic activities and promote a general feeling of well-being.

21. Hon’ble Members are aware that the losses in the public sector enterprises due to poor management and faulty planning of the units have led to huge losses over the years. The State Government is, therefore, in various stages of winding up many of the State level Public Enterprises (SLPEs) as committed to in the second MoU of June, 2002. Progress in this direction is with the objective of containing the unproductive drain on the resources of the State.

22. Debt servicing has been identified as a crucial parameter in the fiscal profile of the States. The Government of India has appreciated the reeling impact on this account due to the high rates of interest borne by the States in the context of prevailing rates of interest. The State Government will be taking advantage of the facility of debt-swap under which outstanding loans bearing high interest rates will be reset at lower prevailing rates of interest and rescheduled for repayment over longer periods. This is expected to contain to some extent the sizeable drain due to repayment of principal and interest on outstanding debts.

23. The Local Bodies have been recognised as an integral component of governance, particularly from the term of the Eleventh Finance Commission. The EFC has made it obligatory that disbursement of resources is made to Local Bodies only where elected bodies are in place. It may be appreciated that an equitable distribution of resources necessarily involves disbursement through the Local Bodies. While the Local Bodies in the valley both under urban and rural panchayats are firmly in position, there have been no elections held in respect of District Councils in the hills. This has led to a blockade in the flow of resources to the Local Bodies in the hills. To rectify this situation I propose to conduct elections to the District Councils during 2003-04 and ensure investment of resources awarded by the EFC effectively.

24. Effective governance is possible by ensuring accountability, transparency, predictability and participation. Economic reforms and improvement in the law and order can only be delivered by an appreciable improvement in effective governance. The State Government is, therefore, arranging for professional assistance by taking up a project under the title of “Capacity Building for Good Governance” under the technical Assistance of the World Bank. It is expected that valuable recommendations for effective governance will be made on conclusion of the project.

25. An important pillar of good governance is transparency which can be promoted with greater access to information. With this objective, the Government has notified the “Information Technology Policy of Manipur, 2003” so that Manipur may not be left-out from the process of globalization through the revolution in information technology that is currently sweeping across the continents. We can no longer remain insulated. The policy is aimed to provide the much needed direction and thrust. It is hoped that even e-governance will soon become a reality.

26. In furtherance of this cause, the State Government has already taken up advanced preparatory steps for setting up of a Software Technology Park of India (STPI) in Imphal. This designed to give a stimulus to rapid growth and development of this important high-tech sector. It will create possibilities for employment generation of a highly skilled section of the youth.

27. Mr. Speaker sir, it is now obvious to one and all that the resources that the State receives through the normal devolutions under Finance Commission’s Awards and the Annual Plans is not enough to meet developmental needs. The State Government has, therefore, been exploring alternative avenues for tapping resources for creation of critical infrastructure. The Non-Lapsable Central Pool of Resources (NLCPR) has now proved to be a useful source and the State Government has been increasingly successful in accessing this source. Since 1998-99, schemes worth Rs. 334.21 crores have been approved under NLCPR. Works pertaining to Rs. 27.20 crores have so far been completed. The on-going schemes are worth Rs. 307.01 crores. Besides, new schemes worth Rs. 66.36 crores have been approved during the current year. There are other schemes also in the pipeline. The schemes financed under NLCPR are mostly under roads, education, power and water supply. I am happy to mention that many of these schemes are to be implemented in the hill Districts.

28. Apart from exploring external sources, it is imperative for the State to prospect other means for augmenting internal resources also. While effort is being made for toning up of the tax administration and collection machinery, a qualitative improvement in the State’s own resources is expected with the finalization of the groundwork for launching of the On-line Lottery from May, 2003. A minimum sum of Rs. 30.00 crores is expected from this source alone during 2003-04 and is projected to increase annually.

REVISED ESTIMATES 2002-2003:

29. Mr. Speaker Sir, it is in the above context of despair and hope that I now present Revised Estimates for the year 2002-2003.

30. The Revised Estimates of gross expenditure for the year 2002-2003 is Rs. 3530.44 crores as against Rs. 2885.41 crores in the Budget Estimates whereas net expenditure for 2002-2003 is Rs. 3459.26 crores as against Rs. 2809.99 crores in the Budget Estimates. The reason for the increase has been explained while introducing the Demands for Grants.

31. The Plan outlay of the State for the year 2002-2003 as reflected in the Budget Estimates was Rs. 329.48 crores. The Revised Annual Plan Outlay now stands at Rs. 550.00 crores out of which Rs. 211.33 crores is in the Revenue Account and Rs. 338.67 crores in the Capital Account.

32. For the Centrally Sponsored Schemes and other sponsored schemes under NEC, NCDC etc., the revised outlay now is Rs. 204.42 crores as against Rs. 97.60 crores in the original Budget Estimates, the increase being Rs. 106.82 crores.

33. As a result of the above changes, the Revised Estimates of net revenue expenditure is Rs. 1555.79 crores as compared to Rs. 1366.65 crores in the Budget Estimates 2002-2003. On Capital Account, the proposed net expenditure in the Revised Estimates is Rs. 1903.47 crores against the Budget Estimates of Rs. 1443.34 crores.

34. The Revised Estimates of overall net receipts excluding Public Account during the year is Rs. 3548.00 crores as compared to the Budget Estimates of Rs. 2670.42 crores.

35. The State’s own Tax and Non-Tax Revenue reflected in the Revised Estimates is Rs.123.03 crores against the actuals of Rs. 79.74 crores during 2001-2002 showing an increase of Rs. 43.29 crores. The Capital Receipts is Rs. 2002.12 crores including Rs. 1401.00 crores of ways and means advance in the Revised Estimates against the Budget Estimates of Rs. 1419.39 crores showing an increase of Rs. 582.73 crores.

36. With the Revised Estimates of expenditure and receipts during 2002-2003, the year is expected to close with a deficit of Rs. 413.57 crores. This is against the actual closing deficit of Rs. 557.68 crores at the end of 2001-2002 and constitute 9.65% of the total budgetary outlay. This deficit will remain unfilled and will be carried over to the succeeding year 2003-2004.

BUDGET ESTIMATES 2003-04:

37. I shall now present the budget estimates for 2003-04. This august House is aware that the Planning Commission has not yet finalised the Annual Plan Outlay of the State for 2003-04. The provisions made under Plan Heads are, therefore, tentative. These are proposed to be revised through Supplementary Demands when the State’s Plan Outlay is finalised. I shall, therefore, refrain from going into the details. The important parameters are however mentioned below.

38. The total receipts for the year 2003-2004 excluding Public Account are estimated at Rs. 3443.33 crores exhibiting a decrease of Rs. 104.67 crores over the Revised Estimates 2002-2003. Out of this the revenue receipts are estimated at Rs. 1514.57 crores and Capital receipts at Rs. 1928.76 crores. The revenue receipts show a decrease of Rs. 31.31 crores over the receipts of Revised Estimates 2002-2003. The revenue receipts include devolution of Central Taxes and Duties, Statutory Grants etc. as per the norms laid down by the Eleventh Finance Commission.

39. State’s own tax and non-tax receipts are estimated at Rs. 67.56 crores and Rs. 109.65 crores respectively. There is an increase of Rs. 7.77 crores and Rs. 46.41 crores respectively over the Revised Estimates 2002-2003.

40. The revenue expenditure (net) is estimated at Rs. 1520.33 crores. On the Capital Account, the net expenditure including Public Account is estimated at Rs. 2736.24 crores.

41. Taking into account the overall estimates of receipts and expenditure, the year 2003-2004 is expected to close with a deficit of Rs. 452.47 crores.

42. As the detailed consideration of the Demand for Grants would take sometime, I propose to move separately a “Vote on Accounts” for grant of expenditure covering the first four months (April to July) of the financial year 2003-2004 so as to enable the State Government to carry on its activities from the 1st of April, 2003.

43. With this submission, Mr. Speaker Sir, I present the Revised Estimates for 2002-2003 and Budget Estimates 2003-2004 with the hope that the same will receive the approval of this august House.

JAI HIND
JAI MANIPUR