Fiscal Strategy Report

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FISCAL STRATEGY PAPER

FINANCE DEPARTMENT
GOVERNMENT OF ODISHA
FEBRUARY 2023
1

Contents
PREFACE.................................................................................................................................................... 3
EXECUTIVE SUMMARY ........................................................................................................................ 4
1. FISCAL PRUDENCE AND PFM REFORMS ........................................................................................ 6
1.1. ECONOMIC RECOVERY POST PANDEMIC: .................................................................... 8
1.2. NEW INITIATIVES IN PUBLIC FINANCE MANAGEMENT............................................... 10
1.2.1. BUDGET STABILIZATION FUND: ............................................................................. 10
1.2.2. COMMUNICATION OF MULTI-YEAR BUDGET CEILINGS ................................ 11
1.3. OVERVIEW OF THE FISCAL STRATEGY FOR THE MEDIUM TERM ..................... 11
2. MACROECONOMIC OUTLOOK..................................................................................................... 13
2.1. GLOBAL ECONOMIC OVERVIEW ......................................................................................... 13
2.2. INDIA’S ECONOMIC OUTLOOK ............................................................................................. 14
2.3 ODISHA’S ECONOMIC OUTLOOK .......................................................................................... 15
2.3.1 MONTHLY ECONOMIC ACTIVITY INDEX: ODISHA .................................................. 15
2.3.2 GROWTH SCENARIOS IN ODISHA:.............................................................................. 15
2.3.3 RISK TO THE GROWTH OUTLOOK ................................................................................ 16
2.4. OUTLOOK ON INFLATION ...................................................................................................... 17
2.5. PUBLIC INVESTMENT ................................................................................................................. 17
2.6. INVESTMENT SCENARIO IN INDUSTRY SECTOR. ............................................................... 18
2.7. MEASURES TO SUPPORT ECONOMIC GROWTH:.................................................................. 19
3. FISCAL OUTLOOK .................................................................................................................................... 21
3.1. FISCAL FRAMEWORK OVERVIEW....................................................................................... 21
3.2. REVENUE OUTLOOK ................................................................................................................ 22
MINING SECTOR: .......................................................................................................................... 25
3.3 EXPENDITURE OUTLOOK ........................................................................................................ 26
3.4 DEFICIT OUTLOOK .................................................................................................................... 27
3.5. PUBLIC DEBT OUTLOOK ......................................................................................................... 28
3.6 FISCAL RISKS TO THE OUTLOOK ......................................................................................... 29
MINING REVENUE ......................................................................................................................... 29
DELAY IN RECEIPT OF CENTRAL ASSISTANCE:.................................................................... 30
NATURAL DISASTERS ................................................................................................................... 30
3.7 CONCLUSION ......................................................................................................................... 30
2

ABBREVIATIONS

BE Budget Estimates
CAMPA Compensatory Afforestation Fund Management and Planning Authority
CEFT Centre of Excellence in Fiscal Policy and Taxation (CEFT)
CSF Consolidated Sinking Fund
FRBM Act Fiscal Responsibility and Budget Management Act
FY Fiscal Year
GSDP Gross State Domestic Product
GDP Gross Domestic Product
GST Goods and Services Tax
GVA Gross Value Added
IMF International Monetary Fund
IFMS Integrated Financial Management System
IPRR Interest Payments to Revenue Receipts
LIBOR London Interbank Offered Rate
MSME Micro Small Medium Enterprise
MTFF Medium-Term Fiscal Framework
OMBADC Odisha Mineral Bearing Areas Development Corporation
ONTR Own Non-Tax Revenue
OTR Own Tax Revenue
PFM Public Finance Management
PPP Public-Private Partnership
PSU Public Sector Undertakings / Public Sector Enterprises
RBI Reserve Bank of India
RE Revised Estimates
SARTTAC South Asia Regional Training and Technical Assistance Centre
ST Share Tax
VAT Value Added Tax
3

PREFACE

To strengthen Odisha’s public finances and the credibility of the budget process, the Finance
Department, in consultation with the IMF’s South Asia Regional Training and Technical
Assistance Center, has developed a medium-term fiscal framework (MTFF) to support annual
budget formulation and medium-term fiscal planning.
The MTFF is a set of forecasting and analytical processes that enable the State to prepare
macroeconomic and fiscal projections for a three-year period. These projections are based on
assumptions concerning global, national and local conditions. The framework takes into account
variables such as global economic growth, inflation, volatility in the mining industry and specific
fiscal risks. The objective of developing the MTFF is to use it as a reference for the preparation
of the annual budget and fiscal planning over the subsequent two years. It gives a clear and
comprehensive sense of the fiscal strategy within the broad objectives of the FRBM Act.
This Fiscal Strategy Report is an outcome of the MTFF process. We intend to publish it annually
as a pre-budget disclosure document to provide stakeholders with an early indication of how the
State government is planning to approach the coming budget and the medium-term outlook.

This report has three sections, preceded by an executive summary. The first section outlines the
broad objectives of Odisha’s public financial management reforms. The second section presents
the macroeconomic outlook on which the fiscal strategy is based. The third section provides the
medium-term fiscal outlook, with revenue and expenditure projections, and an assessment of
available fiscal space for new programmes.

In chapter-III, under Revenue Outlook section, there is a sub-section which analyse importance of
mining sector and royalty collection from the mining sector. It also projects the estimated revenue
collection from mining sector in the medium term. The mining sector being the most important
source of own non-tax revenue for the State Government, it is critical to understand financial risks
associated with the mining revenue. Accordingly, State Government may devise risk mitigation
measure to minimise the impact on State finances.

(Vishal K Dev)
Principal Secretary
4

EXECUTIVE SUMMARY

1. The Fiscal Strategy Paper has been drafted based on the Medium-Term Fiscal Framework
(MTFF) developed by Finance Department. The MTFF process is intended to strengthen the
preparation of the annual budget and medium-term fiscal planning based on credible projections
that set out the macroeconomic context in which the budget is prepared. By providing a clear
indication to all stakeholders about Odisha’s economic outlook and the State’s fiscal space over
the next three years, the framework will enhance the credibility of the budget making process.

2. The budget for the FY 2023-24 will be presented with focus on economic growth of the
State. The focus of the Government spending will be in education, healthcare services, women
empowerment, infrastructure development and livelihood generation for people of the State. There
will be higher capital spending in education, health, drinking water facilities, irrigation, rural
connectivity, sanitation and urban civic amenities.

3. With robust performance of own revenue, especially own non-tax revenue during the FY
2021-22 mainly driven by revenue from mining sector, the overall revenue position of the State
Government has improved considerably. In the budget estimate for FY 2021-22, it was projected
that the total revenue receipt would be Rs. 1.25 lakh crore. The actual revenue receipt in FY 2021-
22 was Rs 1.53 lakh crore. Higher than budget estimate is mainly due to increase in mining revenue
from estimated Rs 13000 crore to Rs 48642 crore. The total revenue receipt as per the budget
estimate for FY 2022-23, is Rs 1.64 lakh crore. Looking at the revenue receipt till end of January
2023, it seems that the total revenue receipt will be about Rs 1.62 lakh crore. The slight shortfall
from the budget estimate is mainly due to contraction in Grants from the Central Government.

4. The budget size for FY 2022-23 was estimated at Rs. 2 lakh crore which was 17.6 percent
more than the previous year budget estimate. Looking at the revised estimated for FY 2022-23, it
is projected that the budget size for FY 2023-24 will be Rs 2.30 lakh crore which is 12.5 percent
more than the previous year budget. In the medium term, the budget size is projected to reach Rs.
2.55 lakh crore, Rs. 2.85 lakh crore and Rs. 3.15 lakh crore in FY 2024-25, FY 2025-26 and FY
2026-27 respectively.

5. Administrative expenditure which includes expenditure on establishment, operation and


maintenance is estimated to have a growth rate of 12 percent in FY 2023-24 over the revised
estimate for FY 2022-23. In the medium term, the growth rate in administrative expenditure is
projected to be around 9 percent. Programme expenditure which mainly constitutes expenditure
on various schemes and programmes of the State Government is projected to have a growth rate
of 16 percent in the medium term. It is estimated that the programme expenditure is set to increase
5

from the revised estimate of Rs. 1 lakh crore in FY 2022-23 to 1.25 lakh crore in FY 2023-24
which is a growth of about 25 percent.

6. The State Government is focusing on spending in key sectors of the economy so that the
ground lost due to the pandemic can be covered as quickly as possible and the State Government
resumes its economic growth to the pre-pandemic level. As per the revised estimate of FY 2022-
23, programme expenditure is estimated to be higher than administrative expenditure. This trend
is likely to continue in the medium term also. The objective is to make more resources available
for capital spending which will have positive effect in the economy in the long run. The total
capital outlay has increased from 3.5 percent of GSDP in FY 2021-22 to 4.8 percent in the revised
estimate of FY 2022-23. It is projected that the capital outlay will be more than 6 percent of GSDP
in the medium term.

7. Higher revenue collection from the mining sector has enabled the State Government to spend
more on the socio-economic sector and creation of infrastructure which will have multiplier effects
on the economy of the State. As per the medium term fiscal framework, it is estimated that all the
fiscal parameters of the State Government will remain within the limits set by the FRBM act. The
key focus of the State Government is quality spending on capital expenditure for asset creation.
Overall the fiscal outlook of the State Government appears to remain stable in the medium term.

Table: Summary Medium Term Fiscal Framework (as percent of GSDP)

Forecast Period
2021- 2022-23
Fiscal Indicator (% of GSDP) 2023-24 2024- 2025- 2026-
22 (RE)
(BE) 25 26 27
Revenue Receipts 23.1 21.1 21.1 21.0 20.8 20.1
Administrative Expenditure 11.6 11.7 10.9 11.2 10.6 9.5
Programme Expenditure 10.4 13.1 14.5 13.9 14.1 14.0
Revenue Deficit (-)/ Surplus (+) 6.6 2.0 2.8 3.2 3.6 3.5
Fiscal Deficit -3.2 2.8 -3.0 -3.0 -3.0 -3.0
Primary Deficit (-)/ Surplus (+) -4.1 1.9 2.1 1.9 2.0 1.9
Interest Payment to Revenue Receipts Ratio 4.1 4.3 4.0 5.1 5.1 5.4
Debt Stock 14.7 12.7 13.2 14.6 15.8 16.8
Capital Outlay 3.5 4.8 6.0 6.2 6.5 6.5
6

Chapter-I

1. FISCAL PRUDENCE AND PFM REFORMS

Odisha is one of the few States in India who have been consistent in compliance with the FRBM
parameters since 2005. The State Government has adopted a prudent rule based financial policy
since the beginning of the current century. The financial position of the State was very precarious.
Through prudent fiscal management over the period of the time, the State Government has
improved its the fiscal condition considerably. The focus of Government spending in recent years
has been quality capital expenditure. The total capital outlay has improved from mere 1.2 percent
of GSDP in 2005-06 to 4.8% in 2022-23(RE). The journey from a revenue deficit to revenue
surplus State is quite remarkable. Odisha is the only State in the county which has managed to
have revenue surplus of 1.7 percent of GSDP during the COVID-19 pandemic in FY 2020-21. On
account of higher revenue realisation from the mining sector during FY 2021-22, the revenue
surplus was 6.5 percent in FY 2021-22. The higher fiscal space has enabled the State to incur
quality expenditure in critical sectors of the economy such as infrastructure development,
incentivising MSMEs and companies for industrial cluster development across the State. The
sound fiscal and economic policy of the State Government has resulted in economic growth of 11.5
percent and 7.8 percent in 2021-22 and 2022-23(RE) respectively. It is estimated that the economic
growth is likely to be 8 percent in the coming financial year.
A SOLID FOUNDATION FOR FISCAL REFORM
Ensuring fiscal sustainability and stabilizing public finances along with maintaining the pace of
developmental expenditure has been the core objective of the State Government. Over the past two
decades, consistent efforts have been made in this direction. Stable governance backed by solid
public financial management (PFM) reforms allowed the State to prioritize its spending, while
ensuring that social and economic services continued to grow. Table 1.1 below shows how the
State’s approach to fiscal policy has reversed previously unsustainable budget deficit and debt
stock positions. Adherence to austerity measures and efforts to mobilise own revenue have reduced
the fiscal deficit from 6.9 percent of GSDP in 2000-01 to an estimated 2.8 percent in FY 2022-23
(RE) and the debt stock from 44 percent of GSDP to an estimated 12.7 percent in FY 2022-23(RE).
The State Government has transitioned from a high revenue deficit to a revenue surplus
Government. The revenue surplus during FY 2021-22 was 6.6 percent of GSDP.
Table-1.1: Basic fiscal indicators (as percent of GSDP)
Fiscal Indicator (% 2000-01 2004-05 2009-10 2014-15 2020- 2021- 2022-23 2023-24
of GSDP) 21 22 (RE) (BE)
Revenue Deficit (-)/
-4.0 -0.7 0.7 1.9 1.7 6.6 2.0 2.8
Surplus (+)
Fiscal Deficit -6.9 -1.8 -1.4 -1.9 -1.8 3.2 -2.8 -3.0
Debt Stock 43.4 43.8 23.2 13.8 19.5 14.7 12.7 13.2
Capital Outlay 1.7 1.4 2.2 3.5 3.4 3.5 4.8 6.0
7

Consistent financial discipline over the last decade has resulted in financial stimulus in the form
of less borrowing and thus less interest payment. Therefore, more resources are available for public
spending in socio-economic sectors. There has been steady increase in investment in key social
sectors such as health care, education and social security. The total capital expenditure is estimated
to be around 8.4 percent of GSDP in FY 2023-24.

Chart-1.1: Higher Investment in Priority Sectors (Sector Wise Expenditure)

Health Sector Expenditure Social Security Expenditure


18000
9000
16000
8000
14000
7000
12000
6000
Rs in Crore

10000 Rs in Crore 5000


8000 4000
6000 3000
4000 2000
2000 1000

0 0

Education Sector Expenditure Capital Outlay % GSDP


35000 60000
30000
50000
25000
40000
Rs in Crore

Rs in Crore

20000
30000
15000

10000 20000

5000 10000
0
0
8

1.1. ECONOMIC RECOVERY POST PANDEMIC:

The economic growth rate of 11.5 percent during the last financial year i.e., FY 2021-22 was oddly
very high because of base effect and contraction in the economy during FY 2020-21. The growth
rate of the economy during FY 2020-21 was -5 percent due to the pandemic. The following year,
the economy started to recover despite the sporadic appearances of the Omicron wave. However,
due to universal vaccination and proactive health care policies of the State Government, even
multiple rounds of the Omicron waves did not have negative impact on the economic activities.
After registering double digit growth in FY 2021-22, the economy is most likely to have a growth
rate of 7.8 percent in FY 2022-23. The Russia-Ukraine conflict led to a worldwide surge in
inflation mainly driven by high oil and commodity prices. The retail inflation level through the
current financial has been higher than the threshold value of 6 percent. The economic growth is
mainly driven by public investment and private consumption. The universal vaccination drive by
the State Government has enabled migrant workers to return to their place of work.

The State Government has stepped up spending on healthcare, social security, livelihood security
and employment generation during the last two financial years. Increase in capital spending has
been one of the key objectives of the State Government. Crowding-in private investment through
the flagship Make-in-Odisha conclave has given a fillip to infrastructure and industrial growth in
the State. Odisha has emerged amongst top 3 “Startup Hubs” in India through conducive
investment and startup policy. Odisha has emerged as a top investment destination in the country
in recent times. Through the Make in Odisha Conclave-2022, State Government has received
investment opportunity of more than Rs 10 lakh crore which can create more than 10 lakh
jobs. The fundamentals of economy of Odisha are strong and sound. Although the State Economy
is not immune to various fiscal shocks emanating from global and national events, the State
Economy is resilient enough to withstand such shocks like high fuel prices, appreciation of Dollar
compare to Rupee, disruption in global supply chain due to geopolitical war etc. Odisha being a
mineral rich state, its economy is mainly driven by high value addition from the mining and quarry
sector. However through effective economic policy, the State Economy is migrating very fast from
primary sector to secondary and tertiary sectors.

Taking into account many uncertainties in the national and global economy, Finance Department,
Government of Odisha has modelled three scenarios: an upward (best case) scenario, a central
(most likely) scenario and a downward (pessimistic) scenario. These scenarios are explained in
detail in Chapters II and III. The charts below depict the three scenarios in terms of GDP and
GSDP growth rates.
9

Chart-1.2: Economic Growth Projections in three scenarios

230 Real GDP Real GSDP


220 700

In Thousands Crore
210
650
200
In Lakh Crore

600
190
180 550
170
500
160
450
150
140 400

GDP (Upward) GDP (Central) GSDP (Upward) GSDP (Central)


GDP (Downward) GSDP (Downward)

Table-1.2: Growth projections (real GSDP & GDP) in three scenarios

RE Projection Period
Rs. In Crore 2022-23 2023-24 (BE) 2024-25 2025-26 2026-27
GSDP at Constant Prices
Upward 454682 495603 542686 596954 656650
Growth Rate (%) 7.8% 9.0% 9.5% 10.0% 10.0%
Central 454682 490892 529995 572512 620103
Growth Rate (%) 7.8% 8.0% 8.0% 8.0% 8.3%
Downward 454682 484236 515712 551811 593197
Growth Rate (%) 7.8% 6.5% 6.5% 7.0% 7.5%
GDP at Constant Prices
Upward 15760363 16942390 18297781 19853093 21639871
Growth Rate (%) 7.0% 7.5% 8.0% 8.5% 9.0%
Central 15760363 16784787 17959722 19216902 20562085
Growth Rate (%) 7.0% 6.5% 7.0% 7.0% 7.0%
Downward 15760363 16627183 17624814 18682303 19896652
Growth Rate (%) 7.0% 5.5% 6.0% 6.0% 6.5%

These scenarios enable the State government to improve the budget preparation process and
enhance flexibility in budget preparation. This approach also supports the formulation of fiscal
policies over the medium term, enabling the State Government to maintain a clear roadmap of
fiscal indicators over the next three years, as shown in Table-1.3.
10

Table-1.3: Projected fiscal indicators in three scenarios


Fiscal Indicators (Percent of GSDP) 2022-23(RE) 2023-24 (BE) 2024-25 2025-26 2026-27
Revenue Deficit (-)/ Surplus (+)
Upward 2.2 3.2 3.5 3.8 3.8
Central 2.2 3.1 3.3 3.7 3.6
Downward 2.2 2.7 3.3 3.4 3.4
Fiscal Deficit
Upward -2.8 -2.5 -2.5 -2.5 -2.5
Central -2.8 -3.0 -3.0 -3.0 -3.0
Downward -2.8 -3.5 -3.5 -3.5 -3.5
Debt Stock
Upward 12.7 13.0 14.3 15.4 16.3
Central 12.7 13.1 14.6 15.8 16.7
Downward 12.7 13.2 14.8 16.2 17.3
Capital Outlay
Upward 4.8 6.5 6.5 6.8 7.0
Central 4.8 6.0 6.2 6.6 6.5
Downward 4.8 5.0 6.0 6.0 6.0

1.2. NEW INITIATIVES IN PUBLIC FINANCE MANAGEMENT

State Government has implemented a series of reforms in the Public Finance Management domain
to enhance the fiscal sustainability, credibility and transparency in budget making. These reforms
are based on global best practices. State Government has adopted strategic budget making process
with medium term fiscal framework. Further, State Government has undertaken fiscal risk analysis
to analyse fiscal risks emanating from various sources such as volatility of the mining sector,
shocks arising out of macro fiscal parameters, State Owned Enterprises, public private partnerships
etc. In addition to this, Cash Management is being done through short-term and long-term liquidity
management. A commitment management module is being developed in the Integrated Financial
Management System (IFMS) to record all commitments for future expenditure.

In addition to the above reforms introduced in the public finance management domain, State
Government has taken a number of initiatives under the 5T and “Mo SARKAR” principles (Team
work, Technology, Transparency, Transformation and Time limit). These initiatives have further
strengthened the State finances and credibility of the budget making process.

1.2.1. BUDGET STABILIZATION FUND:

Collection of Mining Revenue has been unprecedented during the last two years. The contribution
of non-tax revenue from mining sector has substantially gone up from 25 percent of own revenue
in 2020-21 to 51 percent in 2021-22. It has come down to 43 percent of total own revenue in FY
2022-23(RE). Revenue from the mining sector is sensitive to price fluctuation in international
market and demand for metals in national and international markets. Considering the financial
risks associated with the mining revenue, the State Government has taken a policy decision to put
11

in place a “Budget Stabilisation Fund” which will act as a buffer fund to ensure financial stability
during the period of negative shocks from the mining sector. A strategic reserve would be
maintained in the fund to offset any decline in the mining revenue. requiring risk mitigation
measures to make good the shortfall, if any, in the coming years. The relevant accounting
procedure for withdrawal from the fund has already been prepared.

1.2.2. COMMUNICATION OF MULTI-YEAR BUDGET CEILINGS

The State Government has introduced top-down budgeting through advance communication of
budget ceilings to the line departments from FY 2020-21. To have predictability of budgetary
outlay and aid in multi-year project planning, line departments have been indicated the broad
expenditure ceilings in advance for the Budget Year i.e., Y along with Y+1 and Y+2. In this regard,
the Annual Budget Circular has already been issued for preparation of Revised Estimates for 2022-
23 and Budget Estimates for 2023-24. The multi-year ceilings in respect of Programme
Expenditure have also been communicated to the line departments through the Budget application
(BETA).

1.3.OVERVIEW OF THE FISCAL STRATEGY FOR THE MEDIUM TERM

The fiscal strategy for the medium term is to increase programme expenditure with emphasis on
quality capital spending and asset creation which will induce long term economic growth in the
State. Recently Odisha has emerged as a leading investment destination in the Country. Odisha
has conducive business environment and skilled workforce which enabled it to become a leading
investment destination recently. Odisha has been accorded the achievers status in the recently
released ease of doing business ratings by Government of India. The State Government has
adopted the Industrial Policy Resolution (IPR) - 2022 for next 5 years which aims to transform
the State into an "Industrial Hub of Eastern India" by promoting industries in the thrust and priority
sectors of the State. Through the third edition of the flagship investors' summit Make-In-Odisha
Conclave, 2022, Odisha has received investment opportunity of more than Rs 10 lakh crore which
can create more than 10 lakh jobs.
The Odisha FRBM Act, 2005 mandates the State to generate revenue balance and contain the
fiscal deficit within 3% of GSDP. Additional annual borrowing space of 0.5% of GSDP would be
available during the four-year period from 2021-22 to 2024-25 subject to fulfilment of conditions
linked to power sector reforms in Distribution Companies (DISCOMS) prescribed by Government
of India. Provision for carry forward of unused borrowing space to successive financial years
would also be available. Keeping in view the higher borrowing requirements of the States for
mitigating the impact of the pandemic, the 15th Finance Commission in its report has worked out
the debt path for the states for the period 2021-22 to 2025-26 which is as below:
Table-1.4: Indicative Deficit and Debt Path as per 15th FC recommendation (% of GSDP)
Sl. No. Item 2021-22 2022-23 2023-24 2024-25 2025-26
1. Revenue Surplus 0.5 0.8 1.2 1.7 2.5
2. Fiscal Deficit -4.0 -3.5 -3.0 -3.0 -3.0
12

However, the fiscal policy of the State Government will be guided by the principle of long-term
fiscal sustainability keeping in view the need for higher capital spending to stimulate economic
growth. Over the next three years, Odisha plans to maintain a budget deficit of within 3 percent of
GSDP. This level is consistent with the requirements of the FRBM legislation and will produce a
sustainable medium-term debt stock trajectory. The additional resource requirement to meet higher
spending in the coming financial years will be met by higher revenue realisation from mining
sector and sustainable public borrowing from low cost sources such as OMBADC and CAMPA.

Odisha’s developmental needs require a sustained increase in expenditure in priority sectors in the
years to come. Based on its commitment to strengthen physical and human capital, the State
Government aims to increase public spending on social and economic services. The State
Government aims for higher capital expenditure in FY 2022-23 especially in infrastructure
development. In the revised estimate for FY 2022-23, the total capital outlay is about Rs. 37000
crore which is about 5 percent of GSDP and 18 percent of total budget size. Major State Sector
Schemes for infrastructure development are Biju Expressway, Capital Road Development
Programme, Augmentation of Basic Amenities and Development of Heritage and Architecture
(ABADHA) at Puri, Ekamra Khetra Amenities and Monuments Revival Action Plan (EKAMRA),
Samaleswari Temple Area Management & Local Economic Initiative (SAMALEI), Integrated
Development of Heritage, Monuments & Tourist Destinations, Biju Setu Yojana (BSY), Pradhan
Mantri Sadak Yojana (PMGSY), Mukhya Mantri Sadak Yojana (MMSY), Connecting
Unconnected Villages in Difficult Areas (CUVDA), Connection of Missing Road Links (CMRL)
and Transferred Road Improvement Programme (TRIP).

‘Every life is precious’ continues to be the guiding principle of Odisha’s healthcare sector
transformation. To provide quality healthcare services in the farthest and remotest region of Odisha
is one of the key objectives of the State Government. Provision of potable drinking water through
piped water supply has been another important aim of the State Government. So far, 3350 numbers
of Piped Water Supply (PWS) Schemes and 31,761 numbers of Tube wells have been installed in
last 5 years. In the education sector, State Government has invested heavily on improving quality
of public education through School Transformation Programme. As per the Annual Status of
Education Report (ASER)-2022, the percentage of kids enrolled in Government schools rose from
88 percent in 2018 to 92.1 percent in 2022. The gap between private schools and Government
schools have narrowed down substantially in terms of quality of education.

In terms of fiscal policy, the objectives of the State Government are to maintain the high level of
capital spending while adhering to the sustainable fiscal parameters recommended by the 15th
Finance Commission as well as the FRBM mandates.
13

Chapter-II

2. MACROECONOMIC OUTLOOK

State Government will table the 2023-24 Budget during the last week of February 2023. The
budget for FY 2023-24 will be presented in a time when there remain uncertainties in global
economy. While the pandemic has receded, but rising inflation has caused severe economic stress
in few South Asian economies. The optimism in various economies worldwide due to large-scale
vaccination, economy-stimulating packages, and low base of 2020-21 has been marred by the
unending political conflict in eastern Europe and Russia. High energy prices, accompanied by the
high rate of inflation and interest rate, will slow down the economies during 2023-24 than 2022-
23. For FY 2022-23, Odisha’s GSDP is estimated to grow at 8 percent. Odisha’s economic growth
is expected to remain more than its potential growth of 8 percent in the medium term. Fluctuating
metal prices and supply disruption in crude petroleum oil, edible oil, and other staples will largely
influence the uncertainty surrounding the rate of economic growth and retail inflation. The recent
repo rate hike by the Reserve Bank of India (RBI) to 6.5 percent shows the risk to economic growth
from the persistent high inflation rate.

2.1. GLOBAL ECONOMIC OVERVIEW

The post-COVID-19 pandemic stress and the lingering war between Russia and Ukraine have
infused uncertainty in the world economic situation. Global economic activity is on the
downswing, which is as broad-based and sharper-than-expected shrink. As per the IMF's World
Economic Outlook (October 2022), the war will dampen world economic growth in 2023. The
increase in prices of fuel and food, which are higher than in many decades, will push inflation up.
The increasing prices will hit hardest the poor and vulnerable in low-and middle-income countries.
The economic stories of Sri Lanka and Pakistan in recent times have highlighted the risks that
emerging economies face from the uncertain global economic situation. The global economic
growth will slow down from an estimated 6.0 percent in 2021 to 3.2 percent and 2.7 percent in
2022 and 2023, respectively.

The Indian economy is projected to grow at 6.8 percent in 2022 and 6.1 percent in 2023 as per the
IMF’s World Economic Outlook. The table below shows the projected economic growth of major
economies of the world.
14

Table 2.1: Latest World Economic Outlook Growth Projections

Real GDP (annual percentage change) 2021 2022 2023


Advanced Economies 5.2 3.2 2.7
United States 5.7 1.6 1.0
Euro Area 5.2 3.1 0.5
United Kingdom 7.4 3.6 0.3
Japan 1.7 1.6 1.6
Emerging Market and Developing Economies 6.6 3.7 3.7
China 8.1 3.1 4.4
India 8.7 6.8 6.1
ASEAN-5 3.4 5.3 4.9
Russia 4.7 -3.4 -2.3
Brazil 4.6 2.8 1.0
2.2. INDIA’S ECONOMIC OUTLOOK

As per the IMF’s projection, the Indian economy will have a growth rate of 6.8 percent in 2022.
Revising India’s Gross Domestic Product (GDP) growth downward, the Reserve Bank of India
(RBI) has pegged growth at 6.8 percent compared to an earlier projection of 7 percent for FY 2022-
23. The downward revision is mainly because of volatility in commodity and financial markets
worldwide in the wake of the war between Russia and Ukraine. The global supply chain disruption
has also affected the national economy. The RBI’s monetary policy statement claims that the sharp
escalation in geopolitical tension has offset the expected positive benefits of the ebbing COVID-
19 wave amid the ongoing Russia-Ukraine war. Private consumption and investment may remain
subdued due to higher inflation and economic uncertainty. However, the Indian economy has been
steadily reviving after the pandemic hit the previous two financial years.

The real GDP has contracted by 7.3 percent in FY 2020-21 due to the pandemic. The Indian
economy has revived since then and registered a growth rate of 9.2 percent during FY 2021-22.
We have taken a conservative estimate of 7.3 percent real GDP growth in our medium-term fiscal
framework. The growth rate has been taken at 7 percent in the medium term. In its annual budget
for FY 2023-24, the Government of India estimates the GDP growth rate at current prices at 10.5
percent. The chart below shows the three scenarios: best, most likely, and worst.
15

Chart 2.1-Indian Economic Growth Rate in Medium Term

230 GDP at Constant Prices


220
210
200
In Lakh Crore

190
180
170
160
150
140
2022-23(RE) 2023-24(BE) 2024-25 2025-26 2026-27

GDP (Upward) GDP (Central) GDP (Downward)

2.3 ODISHA’S ECONOMIC OUTLOOK


2.3.1 MONTHLY ECONOMIC ACTIVITY INDEX: ODISHA
The composite State Economic Activity Index measures the pulse of Odisha’s economy. It is
constructed by taking seven state-specific high-frequency (monthly) indicators. These indicators
are State Goods and Services Tax (SGST), Excise Duty, Mining Royalty, Stamps and Registration
Fees, Motor Vehicle Tax, Taxes and Duties on Electricity, and VAT on Non-GST Goods. In
September 2021, the Odisha Economic Activity Index reached 159.0 as against the pre-COVID
(August 2017 to March 2020) level Index of 100. On a year-on-year basis to September 2021, the
economic activity index has improved by 58 per cent. The Odisha Economic Activity Index is
benchmarked to the Composite Purchasing Managers Index (PMI) of India–IHS Markit. In
September 2021 the PMI was at 55.2 against 54.6 in September 2020. An index reading above 50
denotes the expansion and below 50 denotes contraction. The Odisha Economic Activity Index
broadly aligns with the Composite PMI. The rise in Economic Activity Index is due to increased
collection in SGST, Mining Revenue, Stamps & Registration fees, taxes from Motor Vehicles and
revenue from non-GST goods.

2.3.2 GROWTH SCENARIOS IN ODISHA:


Over the past eight years, Odisha’s economy has grown at an average rate of 8.1 per cent. This has
been faster than national GDP growth and among the fastest-growing state economies in India. As
a result, the State’s share of the national economy has grown to 2.5 per cent of GDP. The growth
trajectory of Odisha’s economy is shown in Chart 2.5.
16

Chart-2.3: Odisha Economic Growth Projections in three Scenarios

Real GSDP
700
In Thousands Crore

650

600

550

500

450

400
2022-23(RE) 2023-24(BE) 2024-25 2025-26 2026-27

GSDP (Upward) GSDP (Central) GSDP (Downward)

For the medium term, GSDP growth is projected at 8.0 percent. The economy grew at 11.5 percent
during FY 2021-22 due to higher capital investment both by Government and private sector. As
per the Advance Estimate for FY 2022-23, the economy is projected to grow at 7.8 percent. In the
upward scenario, the economy is projected to grow at 9 percent in the medium term whereas in the
downward scenario, the economy will grow at less than the potential economic growth of the State.
However, these scenarios enable the State government to improve the budget preparation process
and to maximize flexibility in the budget formulation. This approach also supports the formulation
of fiscal policies over the medium term, enabling the Finance Department to maintain a clear view
of fiscal indicators over the next three years.

2.3.3 RISK TO THE GROWTH OUTLOOK

Although Odisha has registered impressive growth in recent years, the economy is vulnerable to
natural calamities and its highly dependence on mining activities and the external environment.
Downside risks to the growth projections stem from uncertainty in the global and national
economic outlook. Slower growth in India’s economy would reduce GSDP growth in Odisha due
to weaker demand for Odisha’s mining output and goods and services. Higher energy costs may
have a cascading effect on supply chains and hence consumption, amid economic recovery.

 The mining sector accounts for 13 per cent of GSDP. Historically, this sector has driven the
economic growth of the State. Its performance is heavily dependent on global metal prices and
demand.
 High Inflation mostly due to higher energy and fuel prices will impact the private capital
formation. If the trend continues, it will affect economic growth rate in medium term.
17

 Reduction in receipt of Central Assistance in case of some Centrally Sponsored Schemes has
forced the State Government to meet the expenditure requirements out of its own limited
resources. Continuance of such trend would adversely affect the implementation of the
schemes as well as overall fiscal health of the State.
 Agriculture remains vulnerable to unpredictable natural cycles and events. The rainfall
calendar has become increasingly chaotic and unpredictable. Cyclones have become more
frequent. Extreme weather can result in wide variations in agricultural output.
 Extreme weather events affect the broader economy. Storms and typhoons periodically damage
infrastructure and prevent public and private institutions from operating. The cost of dealing
with weather damage can be significant for the private and public sectors.

2.4. OUTLOOK ON INFLATION

Based on Consumer Price Index (CPI), Inflation in Odisha remains closer to the national level in
recent times. The rate of inflation in India remained at 5.88 percent in November 2022 as per the
recent data (dated December 12, 2022) released by the National Statistical Office (NSO), Ministry
of Statistics and Programme Implementation (MOSPI), Government of India. For the same
timeline, the inflation rate in Odisha stands at 4.72 percent. The rural inflation rate in India stands
at 6.09 percent, which is higher than the urban inflation rate of 5.68 percent. The relatively higher
inflation in rural areas is mainly due to higher fuel and food prices. For the forthcoming years, the
Reserve Bank of India (RBI) has projected the Indian inflation rate at 5.8 and 5.2 percent,
respectively, in FY 2022-23 and 2023-24.

The increase in global commodity prices, coupled with the conflict in Ukraine, boosted the
inflation rate by affecting the imported inflation component during March-June 2022.
Subsequently, the decline in international commodity prices in July-August 2022 caused a
reduction in inflation. Additionally, the slash in central excise duties on petrol and diesel in May
2022 reduced domestically generated inflation. Therefore, there has been an overall decline in
inflation recently compared to the first quarter of FY 2022-23. However, the current all-India
inflation rate of 5.8 and Odisha’s 4.7 are considered high. The high inflation over a long period
may impact consumption demand in the economy, which in turn could hurt economic growth due
to subdued demand in the economy. The supply chain disruption due to the ongoing geopolitical
tension between Russia and Ukraine could further increase prices.

2.5. PUBLIC INVESTMENT


Odisha’s public investment levels have increased alongside its growing developmental needs. The
unforeseen and unprecedented impact of the pandemic on the economy called for a greater focus
on public investment. Capital Outlay has improved from 3.5 percent of GSDP in FY 2021-22 to
4.8 percent in FY 2022-23(RE). It is projected to reach about 6 percent of GSDP in the coming
financial year. This rise in capital expenditure has been mainly due to capital outlay in the
developmental sector. Public Spending in the developmental sectors has reached almost 50 percent
18

of the total budget outlay. The total programme expenditure in FY 2022-23 is Rs 1.0 lakh crore
which is 50 percent of the total budget size. In the coming financial years, it is projected to increase
further and thus will create positive economic cycle in the near future.

Chart 2.4- Higher Capital Spending in recent years to spur economic growth
80000 9%
70000 8%

60000 7%
6%
50000
Rs in Crore

5%
40000
4%
30000
3%
20000 2%
10000 1%
0 0%

Capital Expenditure Capital Expenditure%GSDP

Close to 60 per cent of the State’s population is dependent on agriculture for their livelihood. The
State has invested considerable resources in the development of a sustainable irrigation network.
Significant investments have also been made in other agricultural infrastructures. Investment to
support agricultural productivity remains a priority and will support growth over the next three
years.

2.6. INVESTMENT SCENARIO IN INDUSTRY SECTOR.


The focus of the State Government in recent years has been to attract mega industries in diverse
sectors and to create a business conducive ecosystem for investors especially startups. State
Government has taken a number of initiatives to improve ease of doing business in the State. In
order to improve ease of doing business, the State Government has successfully implemented the
State Reform Action Plan (SRAP) 2020 as recommended by the Ministry Commerce and Industry,
Government of India.

State Government has recently hosted the third edition of the Make in Odisha Conclave. It has
attracted over Rs. 10.48 Lakh Crore of investments across 22 diversified sectors with an
employment potential of over 10.37 Lakhs. Around 122 industrial areas in strategic locations
across the State have been built up. These industrial regions facilitate setting up of MSMEs which
are extremely critical for economic growth and job creation.
19

A Seafood Park at Deras has been established over an area of 152.78 acres of land. For promotion
of investment in downstream & ancillary units in the aluminum sector, Angul Aluminum Park is
being developed jointly by IDCO & NALCO over 223 acres of land at Angul district. State
Government is developing a Petroleum, Chemical and Petrochemical Investment Region
(PCPIR) at Paradeep. The Kalinganagar National Investment Manufacturing Zone has been
established for production of steel. Three industrial clusters are being developed at Dhamnagar
(Bhadrak District), Begunia (Khordha District) and Golamunda (Kalahandi District).

2.7. MEASURES TO SUPPORT ECONOMIC GROWTH:

1. With abundant natural resources, skilled workforce, progressive policies, strong


result-oriented governance and conducive business ecosystem, Odisha is emerging as a
leading investment destination. Government has notified Industrial Policy Resolution
(IPR) 2022 for next 5 years. This policy aims to transform Odisha into "Industrial Hub of
Eastern India" by promoting industries in the thrust and priority sectors of the state.

The 3rd edition of flagship investors' summit Make-In-Odisha Conclave, 2022


showcased huge investment potential and industrial prowess. It received investment intent
of more than ₹10 lakh crore with employment potential of more than 10 lakh jobs. Odisha
has set up more than 5 lakh MSMEs with more than Rs.24,341 crore investment. Newly
formulated MSME Development Policy, 2022 looks to give further impetus to industrial
growth with special incentives for MSMEs in industrial backward districts to create jobs
and boost economic growth. ‘O-Hub’ has been promoting start-up ecosystem in the State.
Wholly-owned and operated by State Government, the centralised incubator facilitates
innovators, mentors and corporate partners work under one roof.

2. The Odisha Logistics Policy, 2022 of notified by the State Government aims to
create integrated logistics system to enhance competitiveness, operational efficiency &
sustainability. The policy will also facilitate private sector investment which will lead to
employment generation in Odisha. It will strengthen State's position as preferred
destination for trade and commerce. Similarly, the Odisha Apparel & Technical Textiles
Policy, 2022 aims to boost employment and enhance economic growth. The policy includes
incentives like Capital Investment Subsidy, Employment Cost Subsidy and Market
Development Initiative.

3. Recently formulated Export Promotion Policy, 2022 aims to achieve an export


target of Rs.3.5 lakh crore by 2026-27, thereby taking Odisha to the league of top 5
exporting States. It advocates diversification of export basket by facilitating value addition.
A new Food Processing Policy, 2022 has been formulated to tap immense potential of the
sunrise sector. Such progressive policies are going to yield immense economic dividend at
the same time creating conducive environment for the entrepreneurship.
20

4. Government has notified the Odisha Motor Vehicles (Registration and Functions of
Vehicle Scrapping Facility) Policy, 2022 with the objective to reduce air pollution by
scrapping old and unfit vehicles, to revive the un-organized vehicle recycling industry and
to encourage setting up of Registered Vehicle Scrapping Facility in Odisha.

5. The new Odisha Port Policy, 2022 aims to facilitate integrated development of non-
major ports and inland waterways as well as facilitate private investment and generate
employment. Similarly, Odisha Civil Aviation Policy, 2022 has been formulated to further
improve air connectivity and create more suitable environment for businesses. The policy
applicable for 5 years which will unlock untapped potential in the aviation sector and create
jobs

6. To position Odisha as a leading MICE (Meetings, Incentives, Conferences and


Exhibitions), eco-tourism and sports tourism destination, State has formulated Odisha
Tourism Policy 2022. The policy promotes sustainable and responsible tourism, and
focuses on accelerated development of tourism sector.

7. Agriculture and allied sector is the largest employment provider State and holds the
key to socioeconomic development of its people. Therefore, special emphasis on
development of this sector through various interventions has been supported by a
comprehensive and inclusive State Agriculture Policy. Separate Agriculture Budget,
dedicated Agriculture Cabinet, inclusion of services under the Sector under the Umbrella
of 5T and Mo Sarkar are some of the remarkable initiatives which have ensured allocative
priority for this sector, faster decision making for sectoral growth and welfare of farmers
in the State. In this sector major investments include creation of additional irrigation
facilities through construction of Dams, Mega Lift Irrigations and installation of shallow
borewell .The investment in this sector is about 1.5% of GSDP.

8. The State Government has made huge investments in Energy Sector the last few
years to improve access to electricity and improve the quality and reliability of power
supply. Odisha Renewable Energy Policy, 2022 has been notified to promote generation of
RE power. Odisha is the first State to start privatisation of the distribution of Electricity.
As a policy , no subsidy is provided to any class consumer, but making capital investment
in generation and transmission sector which will act precursor for economic growth. In this
sector ,Government and PSEs are investing around 1% of GSDP which will have a
multiplier effect on economy.
21

3. FISCAL OUTLOOK
The economy of Odisha has recovered to its pre-pandemic level after contraction during FY 2020-
21. With subside in the pandemic and the multiple waves of the Omicron variant not being so fatal,
a sense of normalcy prevailed during FY 2021-22. The State Economy registered a growth rate of
11.5 percent during FY 2021-22 and would grow at 7.8 percent in FY 2022-23 respectively. The
fiscal deficit and debt to GSDP ratio during the FY 2022-23 are estimated to be 2.8 percent and
12.7 percent respectively. Substantial higher revenue collection from the mining sector in the last
couple of years has enabled the State to go for higher capital spending. The capital outlay during
FY 2022-23 is estimated to be around 4.8 percent of GSDP and this is set to reach 6 percent of
GSDP during FY 2023-24. Due to availability of own resources and other cheaper sources of
borrowing such as OMBADC and CAMPA, the State Government did not go for high cost market
borrowing. Further, the interest free loans extended by Government of India for GST shortfall and
the special assistance for CAPEX have resulted in lower interest payment. The interest payment
to revenue receipts has come down from 6.2 percent in FY 2020-21 to 4.3 percent in FY 2022-23.
In addition to the fiscal deficit limit of 3 percent of GSDP, additional annual borrowing space of
0.5 percent of GSDP would be available till FY 2024-25 subject to fulfilment of power sector
reforms prescribed by Government of India. Also, the unused borrowing space from previous
financial year can be carried forward to successive financial years till FY 2025-26.
3.1. FISCAL FRAMEWORK OVERVIEW

The financial policy for the State Government in the medium term is to increase capital expenditure
on important socio-economic sectors while keeping the fiscal parameters within the sustainable
level. There was an exceptionally high growth in own revenue on account of windfall gain in the
mining revenue. The growth rate of own revenue during FY 2021-22 was 76 percent over previous
year. The contribution of Central government grants to the State’s Revenue Receipt has reduced
from 48% in 2020-21 to 38 % in 2021-22.

Higher revenue collection along with availability of low cost borrowing sources such as OMBADC
and CAMPA have helped the State Government to not go for market borrowing at higher rate of
interest. Besides, the Central Government have provided interest free loans in the form of Special
Assistance for CAPEX and GST revenue shortfall. The outstanding public debt has come down
from 19.5 percent in FY 2020-21 to 12.7 in FY 2022-23. Since there are very few high cost loans
in the debt portfolio of the State, the interest payment has come down also. The interest payment
to revenue receipts (IPRR) would come down to 4.2 percent in FY 2022-23 from 6.2 percent in
FY 2020-21.

Similar to last year, revenue and expenditure projections have been done in three scenarios such
as best case, most likely case and worst case scenarios. The scenario analysis helps in framing
policy to face worst case situation in terms of revenue collection and meeting expenditure needs
of the State Government. The charts below indicate the total revenue and total expenditure position
in three cases.
22

Chart-3.1: Trend in revenue receipt and revenue expenditure (Rs. Crore)

Revenue Receipts (Rs. Crore) Total Expenditure (Rs. Crore)


260
255
In Thousands Crore

215
250

In Thousands Crore
210
245
240 205
235 200
230 195
225 190
220 185
215
210 180
205 175
200 170
195 165
190 160
185
180 155
175 150
170 145
165 140
160

Upward Central Downward Upward Central Downward

Table 3.1 summary of the proposed fiscal framework


(Rupees in Crores) 2021-22 RE Forecast
2022-23 2023-24 2024-25 2025-26 2026-27
Total Receipt (Revenue & Capital) 153414 200000 230000 255000 285000 315000
As % of GSDP 23.2% 26.1% 26.7% 26.3% 26.0% 25.2%
Total Revenue Receipts 153059 163500 184500 204451 228514 251454
As % of GSDP 23.1% 21.3% 21.4% 21.1% 20.9% 20.1%
Total Revenue Expenditure 109588 146744 157770 172027 188090 206466
As % of GSDP 16.6% 19.2% 18.3% 17.8% 17.2% 16.5%
Net Revenue (Deficit/Surplus) 43472 16756 26730 32424 40424 44988
As % of GSDP 6.6% 2.2% 3.1% 3.3% 3.7% 3.6%
Net Fiscal Deficit 21010 -21588 -25845 -29056 -32867 -37494
As % of GSDP 3.2% -2.8% -3.0% -3.0% -3.0% -3.0%
3.2. REVENUE OUTLOOK

Based on the trend of revenue collection up to January,2023, total revenue receipt has been
estimated to be Rs 163500 crore which has a growth rate of 6.8 percent over the last year’s total
revenue receipts. It is estimated to be at Rs 1,84,500 crore in the budget estimate for FY 2023-24.
The growth in total revenue is mainly on account of good performances in own tax and non-tax
revenue sources. In the Own Tax Revenue (OTR), GST and VAT are expected to have very good
growth. In the Own Non-Tax Revenue(ONTR) front, mining revenue has contracted during FY
2022-23 when compare to FY 2021-22, nevertheless it still has 190 percent growth over FY 2020-
23

21. The Own Tax Revenue is estimated to be Rs. 53000 crore whereas Own Non-Tax Revenue is
projected to be Rs 52500 crore during FY 2023-24.

The OTR which consists of revenues from State Goods and Services Tax, Value Added Tax, State
Excise Duty, Electricity Duty etc. is estimated to have double digit growth i.e. an average growth
rate of around 13 percent in the medium term. It is estimated that the OTR will have a growth rate
of 12.7 percent during FY 2023-24. Within the OTR, based on the last ten months of revenue trend,
Excise Duty, GST, VAT and Vehicle Tax are likely to have more than 10 percent growth over the
previous year.

The revenues from mining sector, dividend payment by State PSUs, interest receipts from loans
extended by State Government etc. constitute the own non-tax revenue (ONTR). Looking at the
available data up to January 2023, it is estimated that own non-tax revenue will register a negative
growth rate of around 15% which is mostly due to less revenue from mining. The imposition of
Excise duty on the fines and enhancement of Excise duty on finished products has resulted in less
demand of iron ore and price decline in domestic market. However, it would grow at 12 percent
during FY 2023-24 over 2022-23. However in the medium term, the growth will be around 10
percent in conformity with the historical growth rate. Overall state own revenue which consists of
both own tax revenue (OTR) and own non-tax revenue is expected to grow at 11 percent during
FY 2023-24 to FY 2026-27.

Chart -3.2: Share of each components as % of Revenue Receipts (RR)


100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

OTR%RR ONTR%RR Share Tax%RR Grants%RR

The total transfer from the Union Government comes in the form of (i) share in central taxes, and
(ii) grants from the Central Government. The share in central taxes is likely to have a growth rate
of 11 percent in medium term. There was substantial reduction in grants from centre during FY
2021-22 as compared to FY 2020-21. A contraction of 6 percent was observed in FY 2021-22.
However as per the revised estimate for FY 2022-23, the grants from the centre would be around
24

Rs 27010 crore which has a growth of around 36 percent over FY 2021-22. Looking at the recent
Union Government budget, it is estimated that the State’s share in central taxes during FY 2022-
23 will be around Rs. 42989 crore which is about 12.7 percent more than the previous year. The
total central transfer is estimated to be Rs. 70,000 crores during FY 2022-23 which is 21 percent
more than the FY 2021-22.
Table -3.2 – Revenue outlook (percent of GSDP)
2021-22 RE Forecast
2022-23 2023-24 2024-25 2025-26 2026-27
1. State Own Tax 6.16% 6.14% 6.15% 6.19% 6.2% 6.2%
2. State Own Non-Tax 8.2% 6.1% 6.1% 5.9% 5.7% 5.4%
3. State Own Revenue(1+2) 14.4% 12.2% 12.2% 12.1% 11.9% 11.5%
4. Share in Central Taxes 5.8% 5.6% 5.4% 5.4% 5.5% 5.2%
5. Grants from Centre 3.0% 3.5% 3.8% 3.6% 3.5% 3.4%
6. Central Transfer 8.8% 9.1% 9.2% 9.0% 9.0% 8.6%
5. Total Revenue (3+6) 23.1% 21.3% 21.4% 21.1% 20.9% 20.1%

The GST compensation is a provision to compensate the sub-national governments for loss of
revenue arising out of implementation of the GST in the country. As per the GST (Compensation
to States) Act, 2016 revenue shortfalls arising from the transition to the new GST regime would
be made from a pooled GST Compensation Fund (to be collected in the form of a cess) for a period
of five years. As per the decision taken by the GST Council which is the apex body to take policy
decisions, the GST compensation will not end in July 2022. Rather it will continue for the next
few years and it will be released by the Central Government to State Government in the form of
grants.
Chart 3.3 Scenario analysis of Odisha revenue receipts
State Own Tax Revenue (Rs. Crore) State Own Non-Tax Revenue (Rs. Crore)
72
83
In Thousands Crore

70
In Thousands Crore

79 68
75 66
64
71 62
67 60
58
63
56
59 54
55 52
50
51
48
47 46
43 44

Upward Central Downward Upward Central Downward


25

Total Central Transfer (Rs. Crore) State Own Revenue (Rs in Crore)
155

In Thousands Crore
115 150
In Thousands Crore

110 145
105 140
100 135
130
95
125
90
120
85 115
80 110
75 105
70 100
65 95
90

Upward Central Downward Upward Central Downward

MINING SECTOR:

Odisha is a mineral rich state in India. Odisha has rich reserves of iron ores, coal, bauxite,
limestone, manganese, Chromite and other minerals. Odisha accounts for accounts India’s 96
percent of Chromite, 92 percent of Nickel, 51 percent of Bauxite, 24 percent of Coal and 33 percent
of Iron Ore and 43 percent of Manganese. Being a mineral rich state, the mining sector constitutes
an important primary economic activity. Mining constitutes approximately 6 percent of State GDP
and about 26 percent of total revenue receipts of the State Government. Revenue from mining
sector consists of royalty and premium paid by the mines. About 90 percent of State Own Non-
Tax Revenue, 46 percent of State Own Revenue and 30 percent of total revenue receipts come
from the mining sector. Therefore, it would not be exaggerated to say that the mining sector drives
the State Economy.

However the mining royalty and premium paid by the mines are dependent upon the total value of
production. Total value of production is in turn dependent upon the unit price of the mineral (per
metric tonne) and quantity of minerals sold (in metric tonne). The price of minerals such as iron
ore and bauxite etc. has a direct relation with demand of metals in national and international
markets. The Indian Bureau of Mines set the price of the minerals depending upon demand for
metals in the economy. Since mining revenue is sensitive to demand and price of metal in national
and international market, there is risk associated with the mining revenue. To hedge the fiscal risk
from the mining sector, State Government has put in place a “Budget Stabilisation Fund” which
will act as a buffer fund to ensure financial stability and to maintain baseline expenditure.
26

3.3 EXPENDITURE OUTLOOK

Total expenditure consists of both administrative and programme expenditures. Expenditure on


salary and pension contributes to bulk of the administrative expenditure. During FY 2022-23, it is
estimated that the administrative expenditure would be Rs 89500 crore which is 17 percent higher
than that of FY 2021-22. It is proposed to be Rs 94000 crore for FY 2023-24. The administrative
expenditure will have a growth rate of about 9 to 10 percent in the medium term. This will be
mainly driven by expenditure on salary and pension. Both salary and pension constitute about 56
of the total admirative expenditure. With increase in life expectancy and looking at the average
number of employee retiring every year, pension is likely to grow at 10 percent every year in the
medium term. Similarly, salary is also likely to have a growth rate of 10 percent in the medium
term.

In the medium term, programme expenditure is likely to grow in double digits to fulfil the
developmental aspiration of the Government. The priority of the Government is to provide quality
education, better health care facilities, social security and provision of basic amenities like
housing, drinking water and connectivity to all. The State Government plans for higher capital
spending in infrastructure development such as transport, irrigation, power generation, industrial
cluster development etc. in the coming years. During FY 2022-23 and FY 2023-24, it is proposed
that programme expenditure will be more than 50 percent of the total Government budget. In FY
2023-24, it is going to be around 54 percent of the total budget size. This is likely to increase in
coming years and set to go above 55 percent mark in the medium term. The total capital outlay is
estimated to be about 6.0 percent of GSDP.

Chart -3.4: Capital Outlay (as percent of GSDP)

90000 7.0%
80000 6.0%
70000
5.0%
60000
Rs in Crore

% GSDP

50000 4.0%
40000 3.0%
30000
2.0%
20000
10000 1.0%

0 0.0%

Capital Outlay Capital Outlay % GSDP


27

Developmental expenditure, which is the combination of social and economic sector spending, is
estimated to be higher than previous year. Social sector spending which is mainly spending in
healthcare services, social security programmes, water, sanitation, education etc. is estimated to
grow at more than 30 percent during FY 2022-23. This trend is likely to continue in FY 2023-24
too. However in the medium term, growth in social sector spending is likely to remain around 15
percent. Out of the total programme expenditure, social sector spending is almost 47 percent and
this level likely to remain same in the medium term.

Expenditure in the economic sector is crucial for the economic development of the State. Economic
sector spending has reached the pre-pandemic level in the last couple of years. Total spending in
the economic sector is about 8 percent of GSDP and more than 50 percent of total programme
expenditure. This is likely remain at this level in the medium term also. Since the upcoming budget
is going to be the last budget for the current Government before the next assembly election, the
economic sector expenditure will be thrust of Government spending. Out of the total programme
expenditure, the share of State Sector Schemes is about 60 percent and also have a growth of about
10 percent in comparison to spending in centrally sponsored schemes.

Table 3.4 Broad Sectoral Programme Expenditure Outlook (Rs. In Crore)

(Rupees in Crores) 2021-22 RE Forecast


2022-23 2023-24 2024-25 2022-23 2023-24
General Services 1515 1649 2062 2208 2466 2778
% of GSDP 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
Social Services 33942 46783 57575 61344 73107 80794
% of GSDP 5.1% 6.1% 6.7% 6.3% 6.7% 6.5%
Economic Services 32362 51568 65363 71449 79427 91429
% of GSDP 4.9% 6.7% 7.6% 7.4% 7.2% 7.3%
Total 67820 100000 125000 135000 155000 175000
3.4 DEFICIT OUTLOOK

During FY 2022-23 as per the revised estimate, fiscal deficit is estimated to be 2.8 percent of
GSDP. It is projected that the fiscal deficit will remain at 3.0 percent of GSDP during FY 2023-
24 and in the medium term also. During FY 2022-23, the total State Government borrowing is Rs
35,834 crore which is just 4.7 percent of GSDP. It is estimated that the total borrowing in FY 2023-
24 will be around Rs 44,000 crore which is just 5 percent of GSDP. This Government borrowing
includes the mandated public account borrowing such as net GPF. The public account borrowing
constitutes around 60 percent to the total government borrowing in FY 2022-23. With the
availability of low cost financing from OMBADC (Odisha Mineral Bearing Areas Development
Corporation) and CAMPA (Compensatory Afforestation Fund Management and Planning
Authority), State Government did not go for any high cost borrowing such as Market borrowing.
The good thing about the borrowing undertaken by State Government is that it is used for capital
spending only.
28

Debt repayment which is repayment of the principal amount of the total debt is estimated to
decrease in FY 2022-23 and FY 2023-24 compared to FY 2021-22 because the total debt stock has
decreased over the years. The debt repayment has contracted by 29 percent during FY 2022-23. It
is set to increase in the medium on account of higher borrowing in the coming financial years.
However, the debt repayment as a percentage of GSDP is likely to remain at 2 percent level in the
medium term.

Chart -3.5: Odisha Deficit path (percent of GSDP)


4.0%
Fiscal Deficit % GSDP
4.0% 3.0%
3.5%
2.0%
3.0%

2.5% % of GSDP
1.0%
2.0%
0.0%
1.5%

1.0% -1.0%
0.5%
-2.0%
0.0%

-3.0%

-4.0%
Upward Central Downward Fiscal Deficit % of GSDP Debt Repayment % GSDP

3.5. PUBLIC DEBT OUTLOOK

As pe the revised estimate for FY 2022-23, the total debt stock of the State Government is
estimated to be Rs Rs 97037 crore which is 12.6 percent of GSDP. It is set to increase in the coming
financial year and projected to reach 13.1 percent of GSDP. By FY 2026-27, it is projected that
the debt stock will be around 17 percent of GSDP which is well within the FRBM limit of 25
percent. The debt stock also includes interest free long term CAPEX loan of Rs 3740 crore
provided by Government of India. Majority of our borrowing sources are very low cost. Due to
low cost borrowing in the recent years, interest payment has gone down substantially. It has
contracted by 4.5 percent in FY 2021-22.

The FRBM Act mandates to keep the Interest Payment to Revenue Receipts ratio (IPRR) within
15 percent. Due to low cost borrowing and relatively less borrowing during FY 2021-22 and FY
2022-23, the IPRR ratio is estimated to decrease from 6.2 percent during FY 2020-21 to 4.1 percent
during FY 2021-22 and to 4.3 in FY 2022-23. It is projected that the IPRR will further decrease in
FY 2023-22 to 3.9 percent. However, in the medium term it is projected to reach 5 percent.

Chart -3.6: Odisha’s medium-term debt outlook (Percent of GSDP)


29

18%
Debt to GSDP
16%
18%
14%
17%
12%
16%
10%
15%
8%
14%
6%
13%
4%
12%
2%
11%
0%

Upward Central Downward Debt Stock % GSDP IPRR

3.6 FISCAL RISKS TO THE OUTLOOK

Fiscal risks are factors that can cause fiscal outcome to deviate from forecasts. Such risks include
unforeseen public spending due to political obligation, revenue shortfalls, natural disasters and any
other contingent liabilities. In order to ensure fiscal sustainability, fiscal risk identification,
analysis and putting in place appropriate mitigation measures are critical. Government of Odisha
has undertaken Fiscal Risk Management practice to identify different sources of fiscal risks. A
disclosure document in the form of Fiscal Risk Statement is also published along with the annual
budget for general information of all concerned. From the perspective of sound fiscal management,
a few of the possible fiscal risks have been explained in the below section.

MINING REVENUE

The contribution of non-tax revenue from mining sector has substantially gone up from 39 percent
of own revenue in FY 2020-21 to 52 percent in FY 2021-22. This trend is likely to continue in the
medium term also. Revenue from this sector is sensitive to price fluctuation and and demand for
metals in national and international markets. Also it is subjected to variation in exchange rate
between Indian Rupee and benchmarked currencies of the world. Considering the financial risks
associated with mining revenue, the State Government has decided to put in place a “Budget
Stabilisation Fund” which will act as a buffer fund to ensure financial stability during the period
of negative shocks from the mining sector. In order to maintain the level of expenditure in future
years, the Budget Stabilization Fund has been created in the 2022-23 budget and a provision of
Rs. 13000 crore has been made for this.
30

DELAY IN RECEIPT OF CENTRAL ASSISTANCE:

Delay in receipt or non-receipt of Central Assistance in case of some Centrally Sponsored Schemes
has forced the State Government to meet the expenditure requirements for such schemes out of its
own limited resources. Continuance of such trend would adversely affect the implementation of
schemes as well as fiscal health of the State. In addition to this, the central transfer in the form of
Grants has decreased. There is substantial decrease in grants from the Centre during FY 2020-21
and FY 2021-22.Due to cessation of compensation on account of GST shortfall w.e.f July,2022,
there will be less Grant in Aid .

NATURAL DISASTERS

Odisha is exposed to considerable risk as a result of natural disasters such as cyclones and floods.
Natural disasters vary in terms of severity and the year-to-year impacts are impossible to foresee.
The State Disaster Response Fund has been created to assist with immediate relief and
rehabilitation efforts.

3.7 CONCLUSION

Focus of the State Government in the upcoming budget and in the medium term is to mobilize
additional resources for increasing capital expenditure. With sound financial condition of the State,
the nature of expenditure is mostly capital in nature. There remains continued thrust of the
Government for creation of quality infrastructure. Through effective policy decisions, Odisha is
now ranked first State in the country with lowest unemployment rate as per the report of the Centre
for Monitoring Indian Economy (CMIE). MSMEs have been given special incentives to create job
opportunities and boost industrial growth. Government is prioritising spending in key social
sectors to improve quality of life of people of the State. Sound fiscal planning and quality of
expenditure over the years have resulted in sustainable financial condition of the State.

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