Nagaland's Dependency Dilemma

Moa Jamir

Despite a slight uptick in recent years, Nagaland's financial footing remains precarious, with continued external dependence as the main source of funding. Economically, this leaves little room for manoeuvring in terms of developmental activities, while political consequences due to dependence on the Union Government’s largesse cannot be ruled out. 

As the new financial year begins, the writing on the wall, as reflected by the State’s Budget 2024-25 presented in the Nagaland Legislative Assembly on February 27, is clear. Nagaland needs to dissect its fiscal reality, which has both economic and political implications, among others.

On a positive note, internal mobilisation of resources has seen an uptick in recent years, but it remains inadequately low. While the State’s own tax and non-tax revenue in 2024-25 are estimated to be just Rs 2250.05 crore, or around 9.38% of the total projected receipts of Rs. 23978.05 crore, there has been a consistent rise in recent years. However, the collection is abysmally low.

While there was also an increase in the State’s Share in Central Taxes, estimated at Rs 6,940.56 crore in 2024-25 or 29 paise (p) per rupee, both collectively account for around 36p out of total receipts, compelling Nagaland to seek funds from elsewhere often with high liabilities and political cost. With Recovery of Loans and Advances by the State Government estimated at just Rs 1.51 crore, the rest – around 74p for every rupee comes with certain conditions or future liabilities to the State.

Strictly speaking, around 9% of the state's revenue comes from internal sources, with the remaining coming from external sources, primarily central government assistance (grants and loans) and borrowings. This makes the State highly dependent and vulnerable to external factors.

For instance, one of the biggest contributors to the State’s gross receipts is Central Assistance (Grants and Loans) which is estimated to be Rs. 8880.11 crore or around 37p for every rupee in 2024-24. Servicing of Internal Debt was also estimated at Rs. 5905.82 crore (25p per rupee).

Such circumstances might compel the State Government to toe the line of the Union, as purportedly reflected in resolutions passed on the Uniform Civil Code, Forest Act and others in the recent past. Often the resolutions come as a form of requests rather than unqualified assertions.  

Purely, from the economic point of view, it also leaves little scope for the State to undertake new developmental activities as most of the expenditure is spent on servicing debt.  

For instance, in the 2024-25 budget, out of total estimated expenditures of Rs 23,727.88 crore, Rs 17775.77 is allocated for non-developmental activities as well as servicing of debt. Out of the total, 'Salary & Wages' and 'Pensions' collectively account for Rs. 10,809.63 crore or around 87% of the total for non-developmental expenditure. 

This indicates around 75p for every one rupee, leaving just 25p as ‘Development Expenditure.’ Moreover, as the funds for Development Expenditure, including those received for Centrally Planned Schemes (CPS)/Centrally Sponsored Schemes (CSS), there is potential for political influences. 

As Nagaland faces the challenges of managing its finances, it becomes crucial to develop tactics aimed at boosting internal revenue streams and lessening reliance on external funding as it enters into new fiscal periods. Given that the fiscal stability of the state holds significance both economically and politically, these strategies should not be mere aspirations, but an existential imperative.

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