Lima Walling
akumwalling@gmail.com
In modern economy, every government borrows huge amounts of money to finance its fiscal deficit. Fiscal deficit shows the gap between a government’s own revenue receipts and its own spending in a financial year. Unlike private individuals governments can spend more than the receipts by borrowing internally (within the country) or externally from other nations or international institutions. Governments of developing countries or state usually use this borrowed money to finance developmental programmes for the economy. So, it is not unusual for a developing country or a state to have huge outstanding debt so long as it fuels infrastructure development and maintain a steady growth rate of the economy.
Like any other government, the government of Nagaland has also borrowed a huge amount of money to finance its fiscal deficit over the years and it stands at Rs. 4340 crores till December last year as answered by our Chief Minister to a question during the current budget session in the assembly. Nagaland is not the only state in India that has a huge outstanding debt; many states have borrowed more than our state. Nagaland’s debt to GSDP ratio, which is an important indicator of the health of an economy is around 55 percent for the last few years and projected to be so for the coming years as compared to the national debt-GDP ratio of around 64 percent (Greece has a debt GDP ratio of 159%). However, in my opinion, this Debt-GSDP ratio in case of Nagaland is unsustainable in the long run and that a crisis looms large over our state’s economy.
Nagaland falls under the ‘Special States Category’ (under the Gadgil Formula of the Planning Commission) and also as stated in the Constitution of India Article 371A, and therefore receives a huge amount of money as Central assistance. This aspect is quite clear from the Budget 2012, out of the total revenue receipts, 65.8 percent comes from Central assistance and not surprisingly only 6.3 percent comes from state’s own generated revenue.
Looking at the state’s Gross domestic Product GSDP which is the value of all final goods and services produced in the state. The annual growth rate of GSDP has been on a declining trend in real terms from 10.22% in 2005-06 to 3.98% in 2010-11. Over the years, although agricultural sector employs more than 85% of the population, its contribution to GSDP has remained stagnant due to poor productivity issues and that of Industry’s contribution to the GSDP has remain low since the inception of the state. Our GSDP has been held together by the Services sector of which the largest component is the Public Administration and services. This trend and sectoral contributions to GSDP is quite a paradox since in the process of economic development, we expect first see a structural shift from agriculture to manufacture and from manufacturing to services at a high stage of economic development. Services sector particularly Public administration and services component as the largest contributor to GSDP confirms that our State is a low productivity state and a Consumption state. Now the questions that begs to be answered is – Where did we spend this huge outstanding debt and is the amount of debt sustainable?
If the debt accumulated over the years were spent on building infrastructures, then we should be reaping its fruit by now at least partially as investments may have long gestation period. Yet we see that infrastructure is non-existent, agricultural sector is stagnant, the manufacturing sector is negligible and in the services sector, we have only public administration and personal services to show for it. Then, on what are we spending our borrowed money? The answer that Nagaland is a politically unstable state and has law and order problems is only the half truth. The reasons for our continuing underdevelopment and the tag as a depended state are deep rooted and will not depend on the resolution of our political problem.
So what’s our future prospect? How are we going to repay our debt? We have a huge outstanding debt with a declining growth rate of GSDP. We are burdening our future generations with a huge debt. Should we adopt austerity measures and control our government’s spending as argued by the conservatives? I think the solution does not lie in austerity measures’; cutting down spending is not going to help, it’s only going to make us worse off. We ought to channel our borrowed money to building infrastructures, raising agricultural productivity and raising up a manufacturing sector and a vibrant service sector so that employment and income can be generated raising the growth rate of the economy and maintain a sustainable debt-GSDP ratio providing a bright future for our future generation.
I am sure this piece has raised more questions than answers, yet we need to act now and find answers quickly. There are no short-cuts to developments and quick fixes to our economy. The government and political parties must rise above politics and arrest the downward spiral of the economy otherwise I see a looming crisis in the near future.
