Assam's economic development picks up pace. Can state finances keep up?

The share of agriculture in Assam's GSDP has declined between FY15 and FY19, but due to its weak finances, the state govt has not been able to fully provide for the needs of the emerging sectors

The Bhupen Hazarika bridge, a mighty 9.15-km-long affair over an equally massive Lohit river and a tributary of an even larger Brahmaputra river, is the most visible symbol of change in Assam. Completed in 2017, the bridge has reduced the effective travel distance between Assam and Arunachal Pradesh by 165 km. As visible symbols go, this is the most effective advertisement of the scale of change possible in the state.
 
More of the goodwill, though, is reserved for the Centre than the state government. Assam Finance Minister Himanta Biswa Sarma inaugurated the new office of the Guwahati treasury last week. For decades, the government treasury buildings had been a byword for mismanagement, which Sarma acknowledged upfront. "This office was in a really bad condition… The services have also transformed and as the computerised system is used now, the total process has become smooth and systematic,” he said. But it comes too close to the state election for public perceptions to change.

 
“In the past 10 years, Assam has economically integrated far more deeply with the national trends,” says Milindo Chakraborty, associate dean at OP Jindal University’s School of Public Policy. It has been able to offer a vastly larger array of economic opportunities for the local population in the process, he says.
 

Old problems linger
 
As the latest Comptroller and Auditor General (CAG) report on Assam’s state finances notes, the state was revenue surplus in only two of the five years in the 2014-19 block. Even those numbers are somewhat dodgy. During 2018-19, the surplus revenue of Rs 6,580 crore becomes just a fourth of its size, at Rs 1,291 crore, when accounted properly.

 
This surplus has to be viewed in the light of non-contribution to the required causes by the state government and misclassification of revenue items under capital category. A major way the state has touched up its books are in the treatment of pensions of government employees. The auditor notes that it has made short contribution to the pension system. The risk it runs from this “unauthorised use of funds” is of “creating uncertainty in respect of the benefits due to the employees and avoidable future liability to the government”. These are strong words. In the earlier era, the treasuries would simply shut down public dealings to deal with demands from pensioners.

Meanwhile, the state faces a larger challenge of a shift in its economic picture. Unlike almost all major states, Assam has industrialised. From FY15 to FY19, there has been a significant decrease in the relative share of agriculture in the state GSDP, reducing from 20.23 per cent to 15.98 per cent. This could be considered a major achievement of the state leadership, but because of its weak financial management, the Sarbananda Sonowal-led government is unable to provide in full for the needs of the emerging sectors. In FY19, for instance, it cut back spending on capital expenditure by Rs 5,489.95 crore to show an impressive correction in its revenue deficit. It ended up with a revenue surplus, instead.

 
But a lot went into it. The CAG report on Assam state finances shows that the rate of growth of own revenue of the state (tax and non-tax combined) has swung wildly in the five-year span since FY15. Some of it was of course due to the implementation of the pan-Indian Goods and Services Tax (GST) in FY18. Yet, the numbers went up from 8.29 per cent in FY16 to 27.91 per cent in FY17, even before the new tax came in the books. For FY19, it reached an astonishing 39.67 per cent after dropping to 5.27 per cent the year before. To calculate buoyancy of these collection efforts with respect to the GSDP is, therefore, futile. The auditor notes that the required access to data is yet to be provided. “The accounts for the year 2018-19 are, therefore, certified on the basis of test audit, as was done when records were manually maintained, as a one-time exception,” it says.

 
On the revenue side, while it had a Budget authorisation to spend Rs 10,422.93 crore on major works in FY19, the state ended up spending just half of that. Essentially, the government then has the money but is still not able to pull up its capacity to spend more and fast to help the economy gather steam.
 
The brighter picture
 
On a positive note, the outstanding debt of the state touched only 18.84 per cent of GGSDP, which was consistently below the norm of 28.50 per cent of GGSDP prescribed by the Assam Fiscal Responsibility and Budget Management Act, 2011.

 
This moderation helped the state in its borrowing programme even in a difficult year like 2020-21. While it has borrowed 27 per cent more year on year, at Rs 13,900 crore so far in this financial year, its benchmark 10-year papers have been priced better than those of states like Punjab and Rajasthan. And that is saying quite a lot. There is a room for caution, though. From FY15 to FY19, while GSDP has increased at 12.70 per cent CAGR, the outstanding debt has grown at a faster rate of 13.80 per cent.
 
Some of the markets’ confidence has a lot to do with the encouraging trend in spending. Since FY16, the state is putting more money to build capital assets. The Rs 8,181 crore spending on the sector in FY19 dwarfs the Rs 2,691 crore spent in FY16. The state papers of course claim it to be much higher at Rs 11,054 crore through the Budget accounting misclassifications discussed earlier. Based on the state accounting, the spend is at 16.16 per cent, against 8.97 per cent in FY15. Even with the more modest number it is above 15.5 per cent, which is quite impressive. A large component of the spending is for roads the state has built to supplement the mega projects like Bhupen Hazarika bridge the Centre has built. About 30 per cent of the state’s capital expenditure Budget was on roads and bridges. The next largest chunk was that on irrigation and flood control projects.

 
A major area where the state slipped is in the provision of housing. Year on year, the spend under the Pradhan Mantri Grameen Vikas Yojana has fallen to just Rs 99.12 crore from Rs 1,832.4 crore in FY19. It does seem that India’s largest state in the Northeast has gathered pace in economic development, but the state government also needs to get its act together.