Dialogue  July - September, 2002 , Volume 4  No. 1

Financial Health of Tripura: Worrying Scan Report
Arunoday Saha

Tripura is one of the ten states enjoying the status of special category in India. The special category of states are those states which, due to their geo-economic disadvantages, deserve special preferential treatment from the Central Government for financing their annual plans. According to the statutory provisions, the special category of states are entitled to receive central assistance of which comes 90% as grants and 10% as loans while the other so-called developed states get 30% as grants and 70% as loans. The plan and the non-plan expenditures are virtually financed by the Central Government for the special category of states, In a sense, the responsibility of the Central Government is to ensure that the backward states are provided with adequate supports so that they also can develop at par with the other developed states. It is further envisioned that the status of special category ascribed to some of the states will cease once they become able to catch up with the rest of the country.

This paper makes a modest attempt to scan the financial health of Tripura state - one of the beneficiaries under the special category of states. The period of scanning ranged particularly from the period of 1990-91 to 1998-99. In order to arrive at the logical conclusions through the scanning, the series of ‘Budget At A Glance’ and the various Reports of the Comptroller and Auditor General of India on the performances of the Govt. of Tripura were consulted for the specific period of time.

The annual budget is considered to be the mirror of the financial health status of a state. A close look into the trend of the budgets over the last decade is expected to provide the financial health situation of the state of Tripura. Being a small state in terms of population of 32 lakhs and geographic area of about 10 thousand square km., Tripura’s budget is also small in size. The total budgetary expenditures, for example, for the years of 1997-98, 1998-99, 2000-01 and 2001-02 are respectively Rs. 1308.66 crores, Rs. 1384.94 crores, Rs. 1999.14 crores, Rs. 2331.11 crores and Rs. 2618.06 crores only. It has been observed that every year the budget estimate increases at the rate of 10% to 15% only. Interestingly, with the usual increase of the size of the budget, there remains unchanged distributional pattern of the allocated resources amongst the various sectors. A table constructed to present the pattern of resource distribution over various sectors is given below:

The pattern of distribution of resources in the various departments, as it appears from the above table, is more or less the same. The finance is at the top (19% to 24%), followed by School Education (15% to 16%) and then comes Power (8% to 11%). Agriculture with 2% to 3% of the total resource is given the least priority. It is an irony of fact that the Agriculture in the predominantly agrarian economy such as Tripura gets no priority at all.

The receipt side of the budgets provides interestingly revealing facts. The financing of the state’s budget, as it has already been mentioned, is mainly done by the Central Government. The contribution by the state itself towards the financing the budget forms 8% to 9% only and the rest comes form the Central Government in the form of plan assistance and non-plan assistance which comprises of the bulk of the total receipts for the budget.

Let us look at a budget for a particular financial year, say, 1998-99 which gives the idea of receipts form the various sources.

It is seen from the table, the state Govt. depended heavily on the grants and loans from the Central Government for its annual plan. Since, the state’s own resource generation from tax-revenue and non-tax revenue being only 8% was negligible, there is no other option for the state but to rely on the Centre for meeting its budgetary expenditure. The Central Government provided to Tripura 90% of the total revenue receipts (Rs. 1139.39 crores) and 97% of the revenue expenditures (Rs. 1175.62 crores) only for the budget of 1998-99. (CAG Report on the performance of the Government of Tripura, 1999, p. XIII).

Now let us turn to the aspect of quality of expenditures the Government of Tripura has since been doing with the receipts form the Central Government under the budget provisions.

The Government expenditures are mainly of four types – plan, non-plan and Revenue and Capital etc. As a matter of facts, the non-plan and revenue expenditure are meant for just maintenance of establishment and services while new assets are created by the plan and capital expenditures. The indicators such as (a) plan expenditure as a percentage of (i) revenue expenditure and (ii) capital expenditure (b) capital expenditure to total expenditure and (c) expenditure on General Service on (i) revenue and (ii) capital generally speak of the status of the quality of expenditures incurred under the budget provisions. Table 3 presents the magnitudes of the indicators which reflect the quality of expenditures made by the state Government during the period of 1994-95 to 1998-99.

It is observed from the above table that the expenditure on General Services on the capital side had been declining faster than the revenue side. The trend was downwardly secular since 1997-98.

Again, over the span of five years starting from 1994-95, the capital expenditure to total expenditure exhibited a continuous fall since 1996-97. Finally, the indicator of expenditure on General Services on capital side showed a trend of drastic fall from 12% in 1995-96 to 2% only in 1998-99, whereas, the proportion of expenditure on General Services on revenue side was on the rise from 30% in 1994-95 to 35% in 1998-99.

The indicators reflecting the quality of expenditures made by the Government of Tripura, unambiguously speak for the directionlessness of the state’s exchequer. It becomes evident that the priority was accorded to the wrong agenda while the assets creation was althrough neglected. It also points out that the budgetary allocations appeared to be guided by other criteria rather than economic consideration. Economic efficiency warrants that the scarce resource is to be put in that area where its return is the highest. The above table, on the contrary, shows that the expenditure on General Services on revenue side was 35% and the expenditure on General Services on capital side was only 2%. The Economic wisdom wanted the planners of the state to re-schedule the budgetary allocations the other way so that the gap could have been made the least, if not possibly the reverse!

The performances of the Govt. of Tripura in regard to the debt management seem to be also disappointing. Table 4 shows that the total liability of the Government had grown by 70% during the period from 1994-95 to 1998-99.

It has been observed that after the payment of principles and the interests on the earlier debt burdens, only less than one third of the new borrowings was made available for fresh investment. While the outstanding debt burden was on the rise, the availability of net fund was, as a result, diminishing due to unproductive investment made in the past. The last column of the above table showing the ratios of the debt to GSDP (Gross State Domestic Products) gives another revealing picture of the state’s plunging into gradual debt-trap from where no return is apparently visible. The ever increasing debt ratio from 33% in 1995-96 to 41% in 1998-99 clearly keeps on sending alarming signal to the state planners to act before the economy slips further beyond recovery.

One of the main functions of any Government is to make expenditure under the provisions of budget to ensure that the assets are created for the welfare of the people of the state and at the same time to ensure that the liabilities are kept at the minimum level for the whole exercise to be meaningful. Unfortunately, the asset-liability scenario of the economy of Tripura is also shocking to note. Below is given the comparative picture of the asset-liability of Tripura during the period from 1994-95 to 1998-99.

It is clear from the Table 5 that the liabilities are increasing at a faster rate than the assets since 1996-97. In standard economic theory, the assets liabilities ratio is considered to be a yardstick for measuring the solvency of the economy. If the ratio is less than one, the economy, for obvious reasons, is insolvent and the higher it is from one, moresolvent is the economy. The overall economic health of the state seemed not so good as it is evident from the assets-liabilities ratio. The ratio had been gradually declining from 1.63 in 1996-97 to 1.57 in 1997-98 to 1.53 in 1998-99. If this trend continues, then we are afraid, it will not be far when the economy of Tripura which appeared seemingly solvent, according to the definition, during the period of scanning, would soon become insolvent in near future.