Odisha manages lowest debt burden with prudent fiscal management

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By Pradeep Kumar Panda

Bhubaneswar, July 26: Odisha is best state in the country in fiscal management. Odisha is the only state in the country that has reduced its public debt in the last three financial years. Odisha reduced its outstanding liability by 1.8% in 2019-20, by 8.4% in 20202-21 and by 12% in 2022-23, a rare feat no other state government was able to achieve in the last five financial years in India.

CareEdge report has rated Odisha as best state in fiscal management. Similarly RBI, World Bank and IMF have appreciated Odisha’s fiscal discipline and marksmanship. Odisha has never violated fiscal targets of Fiscal Responsibility and Budgetary Management Act, 2003 since its inception. Odisha is only state in the country to achieve this magnificent fiscal discipline. This is result of visionary leadership of Hon’ble Chief Minister Naveen Patnaik who chartered 5T principle of good governance.

Total outstanding liabilities of gross loans of State Governments and Union Territories have hit record highs in the financial year 2022-23, showing the latest official data, disclosing that Tamil Nadu has accumulated the highest debt in the country, which has been estimated over Rs. 7.53 lakh crore as per the last financial year’s budget estimate. The state is followed by India’s most populous state Uttar Pradesh which has a debt of over Rs. 7.1 lakh crore during the same fiscal.

Other major states that are highly indebted are Maharashtra (Rs. 6.8 lakh crore), West Bengal (Rs. 6.08 lakh crore), Rajasthan (Rs. 5.37 lakh crore), Karnataka (Rs. 5.35 lakh crore), Andhra Pradesh (Rs. 4.42 lakh crore), Gujarat (Rs. 4.23 lakh crore), Kerala (Rs. 3.91 lakh crore), Madhya Pradesh (Rs. 3.87 lakh crore), Telangana (Rs. 3.66 lakh crore), Punjab (Rs. 3.05 lakh crore), Haryana (Rs. 2.87 lakh crore), and Bihar (Rs. 2.86 lakh crore).

In response to a question, Union Finance Minister Nirmala Sitharaman informed the Loka Sabha that all the states in the country have enacted their own fiscal responsibility and budgetary management laws. Compliance to the State FRBM Act, including monitoring of debts of state owned entities is monitored by the respective state legislatures. During last five financial years no nationalised bank has disbursed any loan to any state government.

The data shared by the Government in Parliament clearly indicates that some states have been doing better than other in managing their finances and they have been following better fiscal policies to reduce their outstanding loans. Odisha is in the top place in this list and has only Rs. 1.1 lakh crore debt, making it lowest in the country.

As against this, some states have reported a massive rise their outstanding liabilities during this period. For instance, the state of Tamil Nadu, which has the highest debt among all the states in the country, reported a double digit increase in its liabilities during the last five years. The state’s debt burden increased by 22.9% in 2018-19, by 15.1% in 2019-20 and then it jumped by a massive 23.1% in 2020-21 and then it increased by 15.4% in 2021-22 and by 14.8% in 2022-23.

The data also showed that heavily indebted states such as Punjab and West Bengal have been following a pattern as they have been trying to restrict the annual increase in their outstanding liabilities to around 9-10% per year.

The same is the case with India’s most populous state Uttar Pradesh, which has the second highest debt burden in the country, but has been trying to limit the annual increase in its debt burden to around 10% or less during the last five fiscal years. On the other hand, some other states and UTs such as Telangana and Delhi have seen significant annual increases in their debt burden during the last five years.

The annual increase in Telangana’s debt burden has more than 15% in each of the last five financial years. In the case of NCT of Delhi, the annual increase in the last three financial years has been 161.5% in 2020-21, 73.5% in 2021-22 and 33.3% in 2022-23.

Public debt can be vital for development. Governments use it to finance their expenditures, to protect and invest in their people, and to pave their way to a better future. However, it can also be a heavy burden, when public debt grows too much or too fast. This is what is happening today across the developing world. Public debt has reached colossal levels, largely due to two factors.

Financing needs soared with countries’ efforts to fend off the impact of cascading crises on development. These include the COVID-19 pandemic, the cost-of-living crisis, and climate change. The weight of debt drags down development. Debt has been translating into a substantial burden for developing countries due to limited access to financing, rising borrowing costs, currency devaluations and sluggish growth. These factors compromise their ability to react to emergencies, tackle climate change and invest in their people and their future.

States are facing the impossible choice of servicing their debt or serving their people. Today, states are spending more on interest payments than on education or health. This must change.

Odisha has shown a proven road map of multiple fiscal management actions to address the debt burden and achieve all round development. The state has grown 15 times since the year 2000 and state is one of the fastest growing economy in the country. Per capita income growth is 73% in recent years and nearing national average.

The implementation of fiscal discipline and fiscal consolidation is crucial to unleash the resources needed to build a more prosperous, inclusive, and sustainable state, nation and world.