In the recent years Odisha has been witnessing a fall in its revenue base worrying the State Government in implementing its pro poor policies and development initiatives. The state rich in mineral resources, has historically relied heavily on its mining sector for raising substantial revenue. However, a multitude of factors, including challenges in central transfers, inefficiencies in resource management, and the complexities of GST implementation, are increasingly putting a strain on the state’s revenue base. While constant efforts are being made to diversify the economy, the road ahead requires robust policy interventions and stringent enforcement to stem potential losses in the revenue.
A significant concern for Odisha’s finances has been the consistent decline in central transfers, both in the form of tax devolution and grants-in-aid in recent times. Reports indicate that central transfers, which constitute a substantial portion of the state’s revenue portfolio, have been decreasing over the past few years. For instance, actual tax devolution in recent fiscal years has often fallen short of the recommendations made by the 15th
Finance Commission. This shortfall is partly attributed to the increasing use of cesses and surcharges by the Union government, which are not part of the divisible pool of taxes shared with the states. This practice by the Union has since been opposed by the states but it remains unheeded. Recently when the 16th Finance Commission visited the state this issue was also flagged before them. This trend creates a considerable gap in the state’s anticipated revenue, impacting its ability to fund developmental programs.
Needles to say Odisha boasts of vast mineral reserves, including significant shares of India’s iron ore and bauxite, making mining a crucial contributor to its non-tax revenue. While the sector has seen a substantial increase in revenue in some financial years (e.g., reaching Rs 50,000 crore in FY 2021-22), the state faces considerable challenges in fully realizing its potential till now. On the one hand the state doesn’t have a comprehensive sustainable mineral policy and on the other hand there is huge pilferage in this sector. A recent Comptroller and Auditor General (CAG) report highlighted alarming inefficiencies and significant revenue losses in Odisha’s mining sector, particularly concerning minor minerals. The report pointed to:Inactive Mineral Sources: A large number of minor mineral sources remain inactive, indicating underutilization of resources;Ineffective Curbing of Illegal Mining: Illegal mining activities continue to result in substantial revenue losses for the state exchequer and Unrealized Leaseholder Dues. Significant amounts of revenue are owed by mining leaseholders as arrears , with large sums yet to be recovered despite court directives.
These issues underscore the need for stricter enforcement, operational reforms, and a revamped strategy to maximize revenue generation from this important sector.
On the other hand the implementation of the Goods and Services Tax (GST) aimed to simplify the tax structure and eliminate cascading effects. While it has somewhat streamlined tax processes and promoted formalization of the economy, Odisha, like other states, has faced many challenges. These include:Complexity and Compliance Burden; Small and medium enterprises (SMEs) have sometimes struggled with the intricacies of GST compliance requirements;ITC Mismatches and Verification; Issues related to input tax credit (ITC) verification have posed challenges;Revenue Shortfalls – In certain periods, the actual SGST collection has fallen short of budget estimates, indicating areas where collection efficiency needs improvement. No doubt
the state government has been taking steps to address these challenges through awareness campaigns, simplification of compliance processes, and technological upgrades in the GST portal but no significant progress is visible in this regard. Odisha’s revenue also comes from its own tax and non-tax sources. While own non-tax revenue has shown some growth, categories like sales tax, stamp duty, and registration fees have historically lagged, indicating a need for higher tax efforts in these areas.
The state government is actively pursuing strategies to diversify its economic base and reduce its over-reliance on the mining sector. This includes:
1.Promoting Non-Natural Resource Sectors: Efforts are underway to catalyze private investments in sectors like agribusiness, chemicals, petrochemicals, textiles, renewable energy, IT/ITeS, tourism, and food processing.
2. Ease of Doing Business: Initiatives like the GO SWIFT portal and attractive industrial policies are aimed at streamlining the investment process and offering incentives to businesses.
3. Infrastructure Development: Focus on developing industrial cities with “plug-and-play” facilities and improving connectivity to reduce logistics costs are crucial for attracting investments.
The Way Forward :
Addressing the erosion of its revenue base is critical for Odisha to sustain its developmental trajectory. This necessitates a multi-pronged approach:
a) Advocacy for Fair Central Transfers: Continued dialogue with the Union government for a more equitable share in central taxes and grants, particularly concerning the impact of cesses and surcharges.
b) Strengthening Mining Sector Governance: Urgent reforms in mining operations, stricter enforcement against illegal mining, and robust recovery mechanisms for unrealized dues are essential to maximize revenue.
c) Optimizing GST Collection: Continuous efforts to simplify GST compliance, enhance awareness among businesses, and leverage data analytics for better tax administration.
d) Aggressive Economic Diversification: Proactive promotion of non-mineral sectors, along with continued investment in infrastructure and ease of doing business initiatives, will be key to creating new and sustainable revenue streams.
e) Improving Own Tax and Non-Tax Revenue Collection: Identifying and plugging leakages, and exploring avenues for increasing the buoyancy and elasticity of existing state taxes.
By addressing these challenges systematically and comprehensively, the State Government can strengthen its fiscal position, ensure the sustainability of its developmental programs, and build a more resilient and diversified economy in the future.
