Competitive populism, climate change to increase fiscal pressure on states: NITI Aayog officials

“Goa, Telangana and Odisha are leading in revenue mobilization and fiscal prudence. In addition, it was observed that Odisha, Jharkhand, Goa, and Chhattisgarh have effectively mobilised non-tax sources. Their own non-tax revenue as a percentage of total revenue was, on average, at 21%, with Odisha relying heavily on mining-linked premiums and Chhattisgarh benefitting from coal block auctions,” the report said.

Punjab emerged as the biggest laggard, followed by Andhra Pradesh, West Bengal, Kerala, and Haryana. “Kerala and Punjab struggle with low quality of expenditure and debt sustainability, while West Bengal faces revenue mobilization and debt index issues. Andhra Pradesh has high fiscal deficits, and Haryana has a poor debt profile,” it said.

In quality of expenditure, Madhya Pradesh scored the highest with 59.7 points from 100, followed by Bihar and Chhattisgarh. Kerala and Punjab scored the lowest – 4.2 and 4.7 points, respectively. The index looks at the quality of expenditure at the aggregate level, with an emphasis on developmental expenditure on social and economic services.

Pravakar Sahoo, programme director at NITI Aayog’s economics and finance vertical, said capital outlay for long-term assets across states is decreasing. “We are looking at the amount of resources diverted or allocated for capital outlays… Over a period of time, that’s been going down because a lot of focus has been on subsidies and competitive populism. That is getting reflected in most of the states when it comes to quality of expenditure,” Sahoo said.

Suman Bery, Vice Chairman of NITI Aayog, warned that climate change is going to affect states like Odisha and Jharkhand on the revenue side, as they benefit from significant coal royalties. “The future is not going to be like the present or the past, largely because of climate change. Climate change is going to affect the expenditure side (also), particularly when we come to the cost of adaptation,” Bery said.

He added that much of the investment needed for climate change is going to be at the state level, and that think-tank is working on financing a big investment push for states. Comparing India to other federations like the US or some Latin American countries, Bery said, “Some of the market incentives for fiscal discipline that exist in other federations are absent (in India).”

The report was launched in the presence of Arvind Panagariya, Chairperson of the 16th Finance Commission, and BVR Subrahmanyam, CEO of NITI Aayog.