FUNDS RECOMMENDED BY 12th FINANCE COMMISSION AND RELEASED BY GOVT. OF INDIA IN DIFFERENT YEARS (Rs.

in Crores)

Released by
Recommendation Released by Recommendation Released by Recommendation Recommendation Released Recommendation Released by Recommendation Released by
SL PURPOSES / SCHEMES GOI by
of TFC GOI of TFC GOI of TFC of TFC by GOI of TFC GOI of TFC GOI
(31.12.07)

2005-06 2006-07 2007-08 2008-09 2009-10 2005-10

1 Non-plan Revenue Deficit Grant. 488.04 488.04 0.00 0.00 * 0.00 0.00 0.00 0.00 0.00 0.00 488.04 488.04

2 Central Share of Calamity Relief 226.16 226.16 232.68 232.68 239.53 239.53 246.73 324.50 254.27 0.00 1199.37 1022.87

3 Top up Grant for Education Sector 53.49 53.46 58.57 58.57 64.13 64.13 70.22 35.11 76.89 0.00 323.30 211.27

4 Top up Grant for Health Sector 31.22 31.22 34.81 34.81 38.81 19.41 43.28 21.64 48.25 0.00 196.37 107.08

5 Maintenance of Roads & Bridges. 0.00 0.00 368.77 368.77 368.77 368.77 368.77 368.77 368.77 0.00 1475.08 1106.31

6 Maintenance of Public Buildings. 0.00 0.00 97.28 97.28 97.28 97.28 97.29 48.65 97.29 0.00 389.14 243.21

7 Maintenance of Forests. 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 0.00 75.00 60.00

8 Heritage Conservation 0.00 0.00 12.50 12.50 12.50 12.50 12.50 9.37 12.50 0.00 50.00 34.37

9 State Specific Need (a+b) 0.00 0.00 42.50 40.50 42.50 3.75 42.50 46.44 42.50 0.00 170.00 131.44

a) Chilika Lake 0.00 0.00 7.50 7.50 7.50 3.75 7.50 11.44 7.50 0.00 30.00 26.44

b)Sewerage System for Bhubaneswar 0.00 0.00 35.00 33.00 35.00 0.00 35.00 35.00 35.00 0.00 140.00 105.00

10 Grants for local bodies. (a+b) 181.40 181.40 181.40 171.00 181.40 80.30 181.40 181.40 181.40 0.00 907.00 725.60

a) Grants for Panchayati Raj

160.60 160.60 160.60 160.60 160.60 80.30 160.60 160.60 160.60 0.00 803.00 642.40
Institutions (PRIs)

b) Grants for Urban local bodies

20.80 20.80 20.80 10.40 20.80 0.00 20.80 20.80 20.80 0.00 104.00 83.20
(ULBs)

Total 995.31 995.28 1043.51 1031.11 1059.92 900.67 1077.69 1050.88 1096.87 0.00 5273.30 4130.19

11 Share in Central Taxes and Duties 4719.43 4876.75 5403.19 6220.42 6199.86 5258.50 7129.82 8279.96 8217.17 1264.18 31669.47 28487.81

GRAND TOTAL 5714.74 5872.03 6446.70 7251.53 7259.78 6159.17 8207.51 9330.84 9314.04 1264.18 36942.77 32618.00

* Besides, Rs. 58.66 Crore towards Central Share of CRF for 2007-08 and Rs. 25.00 Crore from NCCF has been received on 11.9.06 during 2006-07

336
 Executive Summary of the Memorandum of Govt. of Orissa
to 13th Finance Commission

Introduction:

(i) Centre-State financial relation in India is built upon the three pillars
of expenditure assignment, revenue assignment and inter-
Governmental transfers. The framework is provided in the
Constitution as well as in conventions and practices. The Finance
Commission is the constitutional body assigned with periodic
assessment of the system in general and inter-governmental
transfers in particular.
(ii) In terms of the constitutional mandates Finance Commission can
and should consider the requirements of the State in their totality
and not confine their attention to only the non-plan revenue
account of the State.
(iii) The 13th Finance Commission begins its deliberations at a time when
the immediate past and the immediate future are at odds. The
healthy growth of the economy, higher Central tax devolutions and
much-needed reforms had transformed the perpetually deficit-
ridden finances of most of the States including Orissa into relatively
comfortable situations, at least in meeting the committed revenue
expenditures.
(iv) The immediate future is not so positive – several factors like signs of
slowing down of economy, rising prices, deferred expenditure
liabilities, pay revision as per recommendations of 6th Central Pay
Commission constitutes heavy strain on the State finances.
(v) For the State the imperatives of development predict a serious
shortage of resources. The State has been only recently
experiencing some amount of industrialisation but the vast potential
of agriculture in the State that is yet to be realized in full must be
tapped to the maximum possible extent. The strategy to achieve
this goal has to include large expenditure on both social and
physical infrastructure as also catering to the more immediate
requirements of the poor.
(vi) Recent industrialization in the State so far has been largely confined
to minerals and mineral-based industries. Exploitation of minerals per
se may not help the State much because the royalties received are
not enough to meet even the costs of appropriate corrective
measures for pollution, loss of environment and ecological assets
and displacement of people.
(vii) In the scheme of public finances, the developmental imperatives
would require higher capital expenditure and larger revenue
expenditure. The expenditure assessments by the Finance
Commission have to be based on some measurement of

Memorandum to 13th Finance Commission

337
 expenditure needs rather than past trends as assigning future
expenditure requirement based on data for a base year is
particularly unsuitable in a developing State like Orissa.
(viii) The primary objective of the Finance Commission ought to be
equity. Predominance of the equity objective is implicit in the Indian
constitutional provision as Article 275 of the Constitution states that
grants are to be provided to “such States as Parliament may
determine to be in need of assistance”. Obviously such assistance is
not intended for all States indiscriminately.
(ix) There has to be a balance between equity and efficiency so as to
help the less developed States, keeping equity as the prime
consideration.
(x) Since many of the less developed States are ones with highest
growth potential, greater allocation of resources to these areas
would benefit the entire nation by maximising national growth and
spreading out the benefits of high growth.
(xi) The Constitution of India envisaged the Finance Commission to be
the sole arbiter of Centre-State transfers. The role of plan transfers
and the Central Plan/Centrally Sponsored schemes ensure that the
Finance Commission can truly fulfil its constitutional responsibilities
only if it fully takes into account other forms of intergovernmental
transfers than those it recommends itself. Major items of expenditure
of the Government of India have a distribution that favours the
developed States to some extent (Central expenditures like its
investments in public enterprises and railways, food & fertilizer and
petroleum subsidies). Therefore, the degree of the equalisation that
the Finance Commission desires to bring about has to be adjusted
upwards in their recommendations to compensate for the net
disequalising effect of Central interventions.
(xii) By excluding the plan expenditure and the capital account, the
Finance Commission implicitly assumes that all States can raise the
necessary resources for these expenditures on their own as
supplemented by plan and other grants. A more comprehensive
method can be to first make the estimates of resource deficits both
under non-plan and plan and then assess the amounts of plan (and
other) grants and arrive at a figure of overall deficits to be tackled
by the Commission.
(xiii) When the growth of Central Tax revenue is less than anticipated,
States like Orissa lose heavily on account of shortfall of
developmental resources. To prevent this from happening again
the Commission may recommend a floor level of devolution equal
to 100% of the estimated tax devolution. The State Govt. has lost
Rs.894.67 crore and Rs.3663.13 crore during 1995-2000 and 2000-05
on recommendations of the 10th and 11th Finance Commissions
respectively in this score.

Memorandum to 13th Finance Commission

338
(xiv) It is no coincidence that the most debt-stressed States in India are
the least developed States. The basic theme running through the
entire structure of fiscal federalism in India is the pre-devolution
vertical imbalances, severe horizontal imbalances, lack of
equalisation in the system as a whole and the consequent
mismatch of developmental aspirations of the States with the
resources at their command, magnified manifold in the case of less
developed States like Orissa. This mismatch has been bridged with
large doses of borrowings in the past. But recently because of
unsustainable debt burden most of the States have tried to rein in
their borrowings by cutting down expenditure. The rise in debt GSDP
ratio of the States has slowed down by the high growth rates in the
recent past, the debt swap and debt relief mechanism, the phasing
out of Plan loans and the unbundling of Government bonds of
different States by the Reserve Bank of India.
(xv) However, the basic problem of unsustainable debt remains. With
the abolition of plan loans and the Government bond market
looking at the States’ income levels rather than the States’ finances,
a fully market based solution of the debt issue is fraught with risk for
the least developed States. In this situation the relevance of debt
restructuring and write off remains.

Development Constraints

(i) Orissa traditionally one of the underdeveloped regions of India and

with one of the highest poverty ratio in the Country has been
developing at a faster rate than earlier. Given its geography –
coastal State with extremely high level of mineral wealth – rapid
growth rate should have been a basic characteristic with Orissa’s
economy and polity. But this could not happen mostly because of
the freight equalization policy that impacted adversely on the State
during the last several decades.
(ii) In the post liberalization scenario strong fiscal correction during the
recent years has helped the State to be one of the fastest growing
States of India. Yet the State is impeded by several problems like
low human development index, lack of infrastructure, large ST & SC
population, narrow revenue base etc.
(iii) Percentage of population below poverty line in 2004-05 was the
highest among all the States in the country, 46.4% against all India
average of 27.5%.
(iv) Agriculture in Orissa is characterised of low productivity on account
of problematic soil, lack of assured irrigation, low seed replacement
rate, low level of fertiliser consumption and low level of
mechanisation etc.
(v) The percentage of exploitation of irrigation potential in Orissa
remain 38.90% compared to all India average of 83.64%.

Memorandum to 13th Finance Commission

339
(vi) The State has recorded forest area of 58136.9 sq. km, which
constitutes 37.34% of the State’s geographical area but 31.06% of
the State’s geographical area is under actual forest cover. The
State has been witnessing rapid growth in mining and other
industries and coal based power projects. This has put pressure on
the States ecology and environment. The State is facing challenge
of minimising the damaging effect arising out of such activities but
funds are a constraint.
(vii) The State is endowed with vast mineral deposits like Iron ore, Coal,
Manganese ore, Bauxite, Chromite, Nickel, Copper, Graphite etc.
Inspite of being a mineral rich State the exploitation does not match
the potential, because of some ill conceived policies of the past
(freight equalisation etc.). Most of the time the State has remained
as a raw material supplier to industries of other States.
(viii) In spite of being a mineral rich State, Orissa does not receive
commensurate non-tax revenue in the shape of royalty due to non-
revision of royalty in time. As a result the State is deprived of its
legitimate dues which affects its resources raising abilities.
(ix) Traditionally Orissa has been a place of Tourist attraction but the
vast scope to attract beach tourism has not been exploited much.
Lack of infrastructure, particularly well laid road, rail, air
communication and other required infrastructure as well as
investment are major stumbling blocks for development of tourism
potential of the State.
(x) The Human Development Index, a combined measure of
achievement in education, health status and quality of living of the
population is estimated at 0.404 as against the national average of
0.472. The State is characterized by moderately high literacy rate,
significant gender gap in literacy and high infant mortality rate,
despite improvements in recent years.
(xi) Although Orissa is rich in resource endowments, yet it occupies a
lower position in terms of per capita income compared with other
States. The State, partly because of its structural weakness that
stood in the way of adequate resources mobilisation, partly
because of special problem such as large ST&SC population which
required special attention and also repeated natural calamities
that regularly disstabilise a part of the developmental efforts, has
not been able to create the required infrastructure environment to
utilise its resources towards faster growth.
(xii) Various exogenous policy constraints and larger considerations
have prevented full scale commercial utilisation of its natural
resources.
(xiii) The crucial strategic issues before the State are how to speed up
the pace of all round development, while paying attention to the
immediate needs of the large number of poor in the State including
the large ST&SC population.
Memorandum to 13th Finance Commission
340
Fiscal Problem

(i) The main factors standing on the way to accelerated all round
development of the State are the persistent problem to manage
the finances prudently and yet provide enough funds to meet the
critical gaps in infrastructure and social services.
(ii) In the recent past the State was passing through a phase of low
revenue growth, high revenue expenditure, unsustainable debt
burden leading to large revenue and fiscal deficit and the resulting
fiscal stress had limited the ability of the State to allocate adequate
resources for development.
(iii) Because of persistent fiscal crisis the State Govt. had to embark
upon a fiscal and governance reform programme which envisaged
additional revenue generation and expenditure rationalisation
measures, restructuring of public enterprises and reducing revenue
deficit with a view to generating additional resources for
developmental activities.(Detail in Chapter-1)
(iv) With such reform initiatives the State has been able to achieve
major fiscal turnaround highlights of which are (i) no ways & means
advance and overdraft since 2005-06, (ii) elimination of revenue
deficit, (iii) generation of fiscal surplus, (iv) reduction in debt stock,
(v) increase in capital expenditure, (vi) enhancement of State plan
expenditure, etc.

Vertical Transfer:

(i) Vertical imbalance in a federation arises because of a mismatch

between large and growing expenditure requirement of State
Governments and relatively inadequate revenue assignment and
growth of internal resources. Tax payers of all tiers of Government
consist of the same population and taxation beyond a point is
counter productive.
(ii) In the Constitution, the major responsibilities in the sphere of
developmental expenditure and administrative expenditure have
been given to the States but the more important powers of revenue
raising have remained concentrated in the hands of the Centre.
Reserve Bank of India published data for 2005-06(Accounts)
revealed that all the States taken together have a higher annual
budget of Rs.572831.00 crore than the Central budget of
Rs.506123.00 crore. On the other hand Central Government collects
Rs.366152.00 crore and the State Government Rs.221247.00 crore of
the aggregate tax revenue collected throughout the country.
States taken together have spent Rs.330044.00 crore and the
Centre Rs.229060.00 crore during 2005-06 (Accounts) towards
developmental expenditure.
(iii) For the first time in the ToR, the 13th Finance Commission has been
asked to take into account the projected GBS to the Central and

Memorandum to 13th Finance Commission

341
 State Plans as a demand on the resources of the Central
Government. This ToR perhaps seeks to restrict the constitutional
authority of the Finance Commission. The 13th Finance Commission
may take an independent view regarding the GBS as referred to in
the ToR and follow the mandate given to it under Article 280 and
adopt the approach and methodology in which the Union and the
States are treated in a balanced manner.
(iv) The share of Central Taxes has been marginally increased by the
12th Finance Commission from 29.5% to 30.5% which is grossly
inadequate to meet the developmental needs of the States. It is
suggested that the vertical transfer of Central Taxes and Duties
should be enhanced from 30.5% to 50% of the net proceeds of the
Central Taxes and Duties by the 13th Finance Commission. The
Commission should also lay down clearly the norm for cost of
collection of Union Taxes and Duties as in the absence of clear-cut
objective criteria for determining the collection charges there is
scope for reducing the net proceeds and thereby depriving the
States of their due share.
(v) Export duty on iron and chrome ore should be passed on fully to the
State to compensate for pollution, depletion of natural resources
and other negative externalities as well as to more generously share
the benefits of mineral based industrial growth with the local
population affected by mining activities.
(vi) The Central Government levies number of surcharges and
earmarked cesses. Surcharges are meant to meet temporary
exigencies but these are being continued almost on a permanent
basis. In the principle of fair distribution of resources, any surcharge,
if continued beyond a period of one year, should form a part of the
divisible pool.

Horizontal Transfer:

(i) In a federal set up like India horizontal imbalance has its root in the
differential capacity and the needs of the State and also
differences in the cost of providing services. There are huge income
and infrastructure differences across the States. Inter-State
disparities among the general category States are not only high but
have shown an increasing trend. The per capita SDP in the richest
State Punjab was about 2.14 times higher than that of Orissa in 1980-
81. This difference increased 2.52 times in 2000-01. The per capita
income levels have tended to diverge sharply in favour of the richer
States after market-based reforms were initiated. With economic
liberalization, the States with better access to factor and product
markets and better infrastructure were able to take greater
advantage of the opportunities as compared to the poor States.
(ii) The per capita plan outlays of poorer States have always been
much lower than those of the developed States. The inability of the
Memorandum to 13th Finance Commission
342
 less developed States to access sufficient resources for the
development of infrastructure through their plan outlays has
emerged as a critical constraint in redressing regional imbalances.
The tax devolution by the Finance Commissions for the last more
than 60 years could not offset the weaker resource position of the
poorer States.
(iii) In a liberalized market driven policy environment, the responsibility
of the 13th Finance Commission to ensure a level playing field for less
developed States and regions like Orissa cannot be
overemphasized.
(iv) In the post FRBM scenario the task of formulating a sound transfer
system has to establish a fine balance between equity and
efficiency, the system where fiscal disadvantage is taken care of
and fiscal imprudence is discouraged.
(v) To ensure equity, while distributing the sharable net/gross proceeds
of the Central Taxes, the Commission should have special
consideration for the States with per capita non-plan revenue
surplus below the average of all States taken together.
(vi) In determining the inter se shares of the States, the factor of
population was given a weightage of 25% by 8th & 9th Finance
Commissions. The 11th Finance Commission reduced it to 10%. The
12th Finance Commission again fixed the weightage of population
at 25%. This State is of the view that since all other criteria are
weighted by population, there is no need for taking population as a
separate criteria. Rather the social profile of the population i.e. the
population belonging to SC & ST category should be taken into
account instead of population per se and may be assigned a
weightage of 10%.
(vii) The concept of using per capita income distance for inter se
distribution is being followed by almost all Finance Commissions. This
criteria though used for correcting differential fiscal capacities and
for enabling the poorer States to meet better the needs for public
goods and services, does not address the real need of the poor
people of a State. In reality few people having huge income and
wealth increases the per capita income of the State and becomes
detrimental to the larger population who are poor and having low
income. Hence this State is of the view that the Commission may
dispense with the criteria of per capita income distance and
replace the same by the criteria of population below poverty line
and assign a weightage of 50%.
(viii) Infrastructure needs is one of the major challenges for the poor
States like Orissa which should not be ignored while considering
equity. This State is of the view that the Commission may consider
assigning 20% weightage to index of infrastructure.
(ix) The index of fiscal discipline has been integrated into the principle
of horizontal devolution by 11th and 12th Finance Commissions.

Memorandum to 13th Finance Commission

343
 Orissa is one of the early States to initiate reform and also enact
FRBM Act. The State Government has adopted various revenue
generation and expenditure rationalization measures resulting in
substantial improvement in its fiscal parameters. Consistent with the
overall approach that equity needs to be balanced with efficiency,
this State is of the view that the index of fiscal discipline may be
given weightage of 20%.

Grants-in-Aid

(i) Need for assistance of individual States are required to be assessed

in relation to the services provided by the State, the standard of
these services in relation to the desirable norms, and the extent to
which these requirements can be met from the own revenues of the
individual States.
(ii) The Finance Commissions have been restricting their assessment to
the States’ non-plan revenue account only. By excluding the plan
expenditures and the capital account, the Finance Commissions
are taking a partial view of the public finances implicitly assuming
that all the States can raise the necessary resources for these
expenditures on their own, as supplemented by Plan and other
grants. A more comprehensive approach to mitigate this problem
would be to first estimate the resource deficits from all parts of the
budget, adjust for the plan and other grants, and arrive at a figure
of overall deficit.
(iii) One of the common features of the process of arriving at assessed
deficits across almost all Finance Commissions has been the
reliance on the figures for a determined base year for the purpose
of projection of revenue and expenditure. It has been seen that
States with low resource base have consistently maintained low
level of expenditure in various sectors, more particularly in social
sector. While projecting the needs of poor States, normative
approach should be taken and the base year expenditure can be
propped up by suitable proportion so that forecast of expenditure
needs can be realistic.
(iv) Finance Commission estimates the non-plan revenue expenditure
based on past trends or Trend Growth Rate (TGR) for the last eight
to ten years with minor modifications to keep the over all non-plan
revenue expenditure at a particular level. This TGR methodology
systematically underestimates the expenditure requirements of
relatively poor States in particular, because their expenditure levels
in the past excepting in recent 2-3 years were much below the
required level due to their fiscal constraints and low fiscal capacity.
(v) Even if the Commission adopts past trends or TGR there are areas
where this past trends or TGR should not be strictly applied. These
are: expenditure on pension, interest payment, education, health

Memorandum to 13th Finance Commission

344
 services, police personnel, fire service, jail personnel and social
security schemes.
(vi) The impact of 6th Central Pay Commission recommendations on the
State finances should be fully taken into account while assessing the
expenditure needs of the State.
(vii) Similarly, on the revenue side, projecting revenue receipts at a
given constant rate of growth over a base year value implicitly
assumes that factors that determined such growth in the past will
continue into the future. This is almost certainly unlikely in the case of
Orissa, which has increased its revenue receipts significantly since
2004-05, both due to increased effort to exploit available ‘revenue
slack’, wherever available, and several fortuitous circumstances.
None of these can be expected to carry on to the future years;
available indications clearly point to no further “revenue slack”,
recessionary conditions and substantially lower rates of growth of
the tax base.
(viii) Despite recommendations of the Sarkaria Commission, NDC, 11th
and 12th Finance Commissions, the royalty on coal and other
minerals are not revised in time. Timely revision and rationalization of
the royalty regime on change over to fully ad valorem basis or in
line with international best practices, would benefit not only Orissa
but all the mineral rich States, which are among the poorest and
least developed. More buoyant revenue from mineral royalty would
enable the State Government to more generously share the
benefits of mineral based industrial growth with the local population
affected by mining activities. This is becoming increasingly critical
because of well known problems relating to rehabilitation.
(ix) The 12th Finance Commission considered it necessary to
recommend grants to achieve specific purposes such as
improvement of health, education, maintenance of roads, bridges,
buildings, forests and for State Specific needs, of its own discretion,
thus establishing that the form and type of grants to be
recommended by the Finance Commission is not necessarily
dependent on the ToR.
(x) Equalization grants for the social services i.e. education and health
sectors may be extended to other economic services like
maintenance of roads & bridges, irrigation and flood control work
and other social services like water supply and sanitation and
maintenance of public buildings (residential & non-residential). It is
therefore submitted that equalization grant of Rs.1032.70 crore and
Rs.648.86 crore may be recommended for education and health
sector respectively.
(xi) Similarly considering the requirement of the State for maintenance
of roads, bridges, non-residential & residential buildings, water
works, irrigation embankments, flood control projects etc.

Memorandum to 13th Finance Commission

345
 equalization grants amounting to Rs.40572.69 crore may be
recommended by the 13th Finance Commission.
(xii) Grants for up-gradation of standards of services and state specific
needs should be recommended in favour of fiscally
disadvantaged States for effective delivery of services, in
addition to equalization and maintenance grants. It is suggested
that grants amounting to Rs.16387.36 crore for different
areas/sectors for upgradation of Standards of Services and State
Specific Needs may be considered for recommendation to the
State by the 13th Finance Commission. The details are as follows:-

Proposals to 13th Finance Commission for Upgradation & State Specific

Grants
(Rs. in crore)
Sl. Financial
Name of the Scheme/proposal
No. Implication
A. Up-gradation of Standard of Administration
1. Buildings for Anganwadi Worker centres 1228.20
Infrastructure development of Government Colleges and
2. 250.00
Universities
Upgradation of Science Laboratories and Libraries of Govt.
3. 85.00
Colleges
Computerisation programme for High School/ Higher Secondary 4.03
4.
Schools in Tribal Areas
Police Administration - Construction of residential and non-
5. 701.32
residential buildings
6. Upgradation of Police Administration and Police Training Institutes. 58.05
7. Upgradation of Fire Services 762.64
8. Upgradation proposal for Judicial Administration 562.94
9. Upgradation proposal for Prison Administration 121.24
10. Upgradation of Services, Training & Infrastructure in Secretariat 16.00
11. Strengthening of Science Laboratories in Secondary Schools 25.00
12. Toilet facilities in Primary / Upper Primary/ Secondary Schools 280.00
13. Drinking water facilities for Secondary Schools 111.60
14. Construction of 360 R.I. Office buildings 25.20
15. Provision for Infrastructure for 145 new Tehsils of the State. 134.85
16. Construction of a Conference Hall at Bhubaneswar 25.00
17. Construction of Residential Quarters 250.00
18. Construction of a new Airstrip at Malkangiri 4.50
Support to Centre for Modernizing Govt. Initiative: Administrative
19. 25.00
Reform
Upgradation of standards of services in State Vigilance
20. 85.00
Department
21. Strengthening of Technical Education and Training in the State 150.00
Development of Sports Infrastructure in Rural Areas with Sports
22. 213.58
equipments
Construction of Sports Hostel Buildings and Construction of Indoor
23. 35.00
Stadium

Memorandum to 13th Finance Commission

346
 Sl. Financial
Name of the Scheme/proposal
No. Implication
24. Establishment of 30 nos. of permanent Lok Adalats in the State. 26.55
25. Establishment of Market yards at Block level 60.00
Establishment of Modernised Inspection and Certification
26. 20.00
Centres(MV)
27. Modernisation of 4 Major Border Check gates of the State 32.00
28. ICT infrastructure for PRIs (e-Panchayat) 408.39
Establishment of 185 nos. of Excise Stations and one Training
29. 62.50
Institute
30. Renovation/Addition/Alternation of the 3 Medical Colleges 100.00
Construction of PHC buildings, Staff quarters for periphery
31. institutions and construction of Sub-centre buildings under Health 738.00
Deptt.
32. Procurement of equipments for all Medical Institutions 100.00
33. Development of Tourism infrastructure in the State 158.26
34. Development of a Science City near Bhubaneswar 469.00
35. Support to Agricultural Mechanization and Infrastructure 120.50
36. Upgradation of Power Sector in the State 5000.00
Total-A (Up-gradation proposals) 12449.35
B. State Specific Needs
37. Preservation of old Monuments 45.00
38. Preservation of State Archives 15.00
39. Upgradation of Public Libraries 6.00
40. Preservation and conservation of Buddhist Heritage 20.00
41. Upgradation of State Museum & Regional Museums 30.00
42. Establishment of a Centre of Excellence in Art & Craft 10.00
Heritage conservation and development of Tourist
43. 30.00
infrastructure in and around Shri Jagannath Temple at Puri
44. Socio Economic dev. of Weavers in Naxal affected area 9.73
Consolidation & Strengthening of Eco-Restoration of Chilika
45. 66.54
and Ansupa Lakes
Construction of Elephant proof barrier around Chandaka-
46. 14.08
Dampara Sanctuary
Conservation and Development of Mangrove Forest and
47. 17.19
Wild Life of Bhitarkanika
48. Preservation of Wildlife 45.42
49. Modernization of Nandankanan Zoological Park 10.70
50. Conservation of Plant Genetic Resources 11.50
Mitigation of Water Pollution in mining and industrial areas
51. 636.16
of the State
52. Combating Coastal Erosion 134.00
53. Drainage Improvement of Different Doabs 839.00
54. Construction of Creek Irrigation Projects 50.42
Construction of raised earthen platform in flood prone
55. 49.30
areas
56. Establishment of State Maritime Museum 10.00
57. Integrated Sewerage System of Sambalpur city 300.00
58. Integrated Sewerage System of Berhampur city 250.00

Memorandum to 13th Finance Commission

347
 Sl. Financial
Name of the Scheme/proposal
No. Implication
59. Comprehensive Sewerage disposal system for Balasore city 420.63
60. Integrated Sewerage System of Jeypore Town. 92.77
61. Improvement of Water Supply of Cuttack city 324.00
62. Improvement of Water Supply of Berhampur city. 303.45
63. Improvement of Water Supply of Sambalpur city. 109.66
64. Combating Maoist and Naxalite Activities 87.46
Total-B (State Specific Needs) 3938.01
Total Up-gradation and State Specific Needs (A + B) 16387.36

(xiii) The Commission may resolve the long standing demand of the
State Government for release of State’s share from the “incentive
funds” as an incentive for better performance during the period
2000-05 as per recommendations of the 11th Finance Commission.
(xiv) While the end use of the grants may be monitored, the matching
NPRE by the states may not be insisted upon.

Ecology & Environment

(i) Orissa has been witnessing a rapid growth in mining, industry and
coal based Power projects. This has put pressure on the state’s
ecology and environment. The state is facing the challenge of
minimizing the damaging effect arising out of such activities.
(ii) Environment assets of Orissa include two reputed wet lands i.e.
Chilika lake and Bhitarkanika areas, forest cover of 58135 sq kms.
comprising 37.34% of total geographical area of the State and
Similipal bio- sphere reserve rich in reposition of 1076 plant species
including more than 200 medicinal plants; 95 species and orchids.
The State also harbours rich diversity of fauna. Chilika lagoon alone
supports 1003 number of floral and faunal species.
(iii) Orissa is alive to the threats to the environment and ecology and
has been trying its best, within the financial constraints, to control all
types of environmental degradation. The State has been constantly
endeavouring to protect the forest areas and regenerate the
degraded forests through a comprehensive strategy, but because
of paucity of funds, working force and other related logistics, it has
not been able to fully accomplish the task.
(iv) The rapid growth in steel, aluminium and power sector have
resulted in steady increase in the mineral exploitation in the State.
However, with all the regulatory and other efforts to maintain
environmental equilibrium, the environmental indicators are
gradually deteriorating.
(v) In order to maintain ecological and environmental equilibrium and
environment assets of the State and to implement the working plans

Memorandum to 13th Finance Commission

348
 for scientific management of forests, the Commission is urged to
consider recommending:
(a) Rs.655.50 crore to meet the costs of creating and rehabilitating
different environment assets like plantation in and around
industrial cities, mining area, road side plantation in industrial &
mining areas etc.,
(b) Rs.1450.00 crore for implementation of working plans for
development and conservation of forest areas, and
(c) Rs. 801.59 crore for maintenance and conservation of other
ecological assets of the state.(Separately proposed also in
Chapter on Grants-in-Aid)

Quality of Public Expenditure

(i) The available resources at the State level needs to be utilized in an

efficient manner i.e. to achieve the best outcome possible with the
given amounts of public expenditure. Presumably the new ToR for
the 13th Finance Commission would want to address this aspect.
(ii) Efficiency in public expenditure can be broadly categorized into
four aspects; (a) economy, or obtaining inputs at the lowest cost,
(b) efficiency, or producing services with the least possible input
use, (c) effectiveness, or producing the right outcome and (d)
process aspects, or appropriate institutions that promote economy,
efficiency and effectiveness.
(iii) Orissa has taken a number of measures for strengthening the
expenditure management and public financial accountability
which include (i) a comprehensive anti-corruption action plan (ii)
introduction of e-procurement (iii) improvement in rate of
compliance to audit paras (iv) improved UC position (v) emphasis
on completion of projects under zero based investment review.
(iv) The 12th Finance Commission had recommended for restructuring of
public finances. They suggested for introduction of performance-
oriented budgeting to ensure economy, efficiency and
effectiveness and changeover to accrual-based accounting etc.
(v) There is a need to strengthen the public expenditure management
system in the State Governments which may include reform in
formulation of budget, resource allocation, public procurement
system to reduce the opportunities for corruption, debt
management, accounting reform, introduction of performance
measurement and performance indicators.
(vi) To encourage better public expenditure management, the 13th
Finance Commission may formulate a system to compare
expenditures to outcomes and to measure economy, efficiency
and effectiveness in public expenditure management and
recommend for incentives and rewards for better performance.

Memorandum to 13th Finance Commission

349
(vii) The 13th Finance Commission may recommend for providing
technical assistance in the form of specific purpose grant for
comprehensive expenditure management programme across all
the Departments of Government with specific components like
development of human resources, strengthening institutional
capacity, restructuring of the organizations and reform in their
processes.

Local Bodies

(i) The 11th Finance Commission recommended Rs.8000.00 crore for

Panchayats and Rs.2000.00 crore for the Municipalities. The 12th
Finance Commission recommended Rs.20000.00 crores for the
Panchayats and Rs.5000.00 crores for the Municipalities. Such grants
are grossly inadequate to meet the multifarious requirements of
local bodies.
(ii) The 13th Finance Commission may estimate the minimum need
based expenditure requirements of local Governments normatively
and at least 5 percent of central tax collections (besides the
horizontal tax sharing) should be devolved in favour of the local
Governments, in lieu of adhoc grants to be distributed between the
States on a set of distribution criteria based on equity.
(iii) Inter se distribution of central resources on the basis of a formula has
been adopted by the successive Finance Commissions in absence
of satisfactory estimation of State devolution and grant-in-aid in SFC
reports.
(iv) The State Government is of the view that the inter se distribution of
local bodies grants between the States may give more weightage
to population-10%, index of deprivation-30%, distance from higher
per capita income-40%, geographical area-10% and revenue
efforts-10%. Too much emphasis on population and revenue effort
will adversely influence allocation to backward States.
(v) While recommending adhoc grants to the State normatively, the
Commission may duly consider to strengthen the financial base of
the local bodies of the State to enable them to improve the quality
of public expenditure and efficiently manage the ecology and
environment at the local level. While recommending grants to Local
bodies, specific needs of the local bodies to meet the requirement
for providing infrastructures, maintenance of assets and provision of
core basic services to the people of their locality may be given
due consideration.
(vi) Financial condition of the local bodies and the State would not
permit for contribution of matching share. The Commission,
therefore, should not put any such conditionalities for matching
share.

Memorandum to 13th Finance Commission

350
(vii) The Commission may provide Rs.10841.65 crore in favour of the
Rural Local Bodies and Rs.2978.89 crore in favour of Urban Local
Bodies of the State for the period from 2010-11 to 2014-15 to meet
the requirements of the Local Bodies. The details are as follows:
Rural Local Bodies
(Rs. in crore)
Sl Purpose Amount
1 Upgradation of Rural Roads 3000.00
Construction of office buildings/ residential quarters for the GPs
2 91.05
and ZPs
Multipurpose Conference/ Community Hall at Gram Panchayat
3 411.30
level
4 Administrative Reforms: (Reorganization of Blocks) 314.00
5 Core Basic Services 3212.80
6 Maintenance of Pipe Water Supply Schemes 1035.10
7 Conservation of MI Projects 1214.00
8 Maintenance of Water bodies 240.00
9 Training of PRI representatives 50.00
10 Storage godown 623.40
11 Special Consideration for PESA 600.00
Strengthening of information system and accounting of
12 50.00
Panchayat Samities and Gram Panchayats
Total: 10841.65
Urban Local Bodies
(Rs. in crore)
Sl Description of purpose Amount
1 Solid Waste Management 1000.00
2 Maintenance of storm water 100.00
3 Rain water harvesting structure 50.00
4 Conservation of water bodies 100.00
5 Maintenance of street lighting 178.89
6 Urban Plantation 100.00
7 Basic services to urban poor 950.00
Total: 2978.89

Debt

(i) Continuance of the debt relief scheme in which the NSSF loan
repayments should also be included. It may be linked to fiscal
performance, but defined in a realistic manner given the present
and the likely future fiscal scenario.
(ii) Waiver of 10% of the consolidated debt Stock relating to
Government of India at the end of each financial year or writing off
50% of the debt stock relating to Government of India at the
beginning of the award period.

Memorandum to 13th Finance Commission

351
(iii) Lowering of rate of interest of NSSF loans to 7.5% after consolidation
of the outstanding Government of India loans including NSSF loans
as on 31.3.2010.
(iv) The interest rate now charged on old EAP loans should be limited to
7.5% instead of 9%.
(v) In the past indiscriminate borrowing without linking to fiscal
capacity has led the States to debt-stress. The recommendation of
12th Finance Commission to fix an annual borrowing ceiling to
finance the State Plan Outlay, though desirable, the developmental
needs of the States should not be overlooked. For backward States
like Orissa though a ceiling on borrowing is to be fixed, adequate
Plan grants should be provided to meet the needs of development
to catch up with the developed States on various parameters of
development.

Goods and Services Tax

(i) Goods and Services Tax (GST) which is proposed to be

implemented w.e.f. 1st April, 2010 is a step further to reform the
indirect taxes on goods and services in the country.
(ii) The GST model, as proposed by the Empowered Committee of
State Finance Ministers, envisages subsumation of VAT,
Entertainment Tax, Luxury Tax, Entry Tax in lieu of Octroi, State cess
and surcharges. An acceptable Revenue Neutral Rate (RNR) is to
be determined to protect the State’s revenue interest.
(iii) Since the road map for introduction of Goods & Services Tax and its
model has not yet been finalized, it would be premature to assess its
impact on the finances of the Centre and States. However,
adoption of a unified model of GST at the Central Government
level would severely curtail the taxing power of the States and
impinge on the constitutionally guaranteed fiscal autonomy of the
States.
(iv) The State Government would urge upon the Commission to
preserve the constitutionally guaranteed fiscal autonomy and
protect the Taxing Power and Revenue Potential of the States in
relation to Taxes on Goods & Services so that there is ample room
for them for flexibility at the time of need for fiscal adjustment.

Calamity Relief & Disaster Management

(i) Estimating requirements of funds for Calamity Relief going by actual

expenditures incurred in the past can be subject to an inherent bias
against low income State, because their actual expenditures are
usually constrained by availability of resources. Hence, the only
important consideration in this context should be the proneness to
natural calamities, their occurrence and the severity of these in a
State.
Memorandum to 13th Finance Commission
352
(ii) The totality of expenditure for relief and rehabilitation should be
taken into account while determining the corpus of the State’s CRF.
(iii) The restriction of incurring expenditure out of CRF/NCCF only on the
eleven listed calamities should be waived and calamities like
Lightening, Heat Wave (Sunstroke), thunder storm, tornado and
drowning of boats should be included in the list of Natural
Calamities for the purpose of expenditure from CRF/NCCF.
(iv) Ex-gratia payment to bereaved family of deceased persons in boat
accident during normal time while ferrying and transporting may be
included in the norms of expenditure.
(v) Maintenance of multipurpose cyclone shelters and emergency
equipments may be included in the norms of expenditure.
(vi) Repair and reconstruction of buildings of all types of Educational
Institutions in addition to primary school buildings may be included
in the norms of expenditure.
(vii) Exemption of tuition & examination fees for the children of calamity
affected small & marginal farmers may be included in the norms of
expenditure for reimbursement to the concerned authority.
(viii) There should be provision for giving subsidy, out of CRF, to farmers
whose lands are inundated by saline water for more than 15 days
due to storm surge and Tsunami for re-fertility of the land by
calcifying the soil or removal of the crust from the land.
(ix) Provision should be made for restoration of public utility services to
bring them to pre-calamity level.
(x) In severe drought conditions, norms may be relaxed for expenditure
on capital works like digging of bore wells, installation of pump sets
etc.
(xi) In fixing the corpus of State’s CRF, increase in the relevant price
index should also be considered.
(xii) The funding of relief and rehabilitation during Natural Calamities of
rare severity should be flexible and adequate and it should be free
from political bias.
(xiii) The low income States facing the wrath of recurring natural
calamities year after year should be allocated an additional
allocation of 30 percent of the aggregate size of the CRF, in line
with the recommendations of the 11th and 12th Finance
Commissions.
(xiv) Centre - State contribution to the State’s CRF should be set at the
ratio of 90:10, instead of present 75:25.
(xv) The CRF for Orissa should be determined at Rs.615.00 crore per
annum and an additional allocation of 30 percent of the size of the
CRF may be provided because of persistent problems of the State.
Total CRF requirement has been projected at Rs.800.00 crore
(Rs.615.00 crore + Rs.185.00 crore – 30% additional). Total corpus

Memorandum to 13th Finance Commission

353
 may be recommended at Rs.4000.00 crore for the period 2010-
15(Rs.800.00 crore x 5 years).
(xvi) The corpus of the NCCF should be raised Rs.1000.00 crore (i.e.
double the size recommended by 12th FC). The Commission should
define the basis on which funds from the NCCF should be released
in favour of a State needing assistance from the NCCF most.
(xvii) For Disaster Mitigation, a sum of Rs.7431.64 crore may be provided
to the State during the period 2010-15.

A case for Special dispensation for Orissa:

(i) Orissa is one of the most disadvantaged States and trails behind
other general category States in terms of socio economic
indicators, human development indicators, availability of public
infrastructure, quality of delivery of public service etc. It has not
been able to fully derive the benefits of the economic reform, the
greater part of the benefits of which have gone to developed
States having quality socio economic infrastructure.
(ii) The State has low fiscal capacity and the inter-governmental
transfer system does not offset fiscal disadvantages of the State. It
has all the characteristics of a special category State except for its
location for which it could not be treated as a special category
State.
(iii) The low fiscal capacity of the State obviously increases the
responsibilities of the State towards its citizen compared to a State
with higher incomes as in the latter case public supply can be to
some extent substituted by private supply. The socio economic
underdevelopment of the State puts the latter option outside the
reach of most of its citizens. Additionally, the responsibility to
strengthen the low levels of infrastructure also puts large
expenditure burdens on the State Government.
(iv) While the State has successfully eliminated the budgetary deficit on
revenue account, as recommended by the 12th Finance
Commission and consistent with the target set in the FRBM
Legislation, there remains very large “developmental deficit” to be
addressed. Per capita income in the State is still about 33% behind
the national average.
(v) The State is yet to achieve the debt sustainability threshold of 28% of
GSDP, prescribed by the 12th Finance Commission compared to
which the State’s Debt GSDP ratio is much higher. Therefore the
State needs higher scale of debt write off.
(vi) The State which has been growing very fast during the recent years,
is very poor in the development of infrastructure. This has eroded
the States competitiveness. FDI equity to the State, generally taken
to be function of the availability of such infrastructure, as
percentage of total FDI equity inflow in India stands at only 0.13%.

Memorandum to 13th Finance Commission

354
 Without adequate road, rail and ports, telecommunication and
efficient irrigation system, the economy cannot exploit its potential
and sustain the rapid economic growth of recent years. Massive
upgradation of urban infrastructure is also needed to be able to
attract and retain the skilled labour force demanded by modern
industries and services.
(vii) The State has small villages/habitations with population below 500
which do not confirm to the PMGSY priorities for rural connectivity.
Some habitations are also having population below 100 and not
eligible to be covered under RGGVY for rural electrification. Such
connectivities would require high level of investment and thus a
cost disability for the State. Geographical exclusion has been a
hindrance for equitable growth of the State.
(viii) Proportion of SC and ST in the population is among the highest in
the State. The majority of ST population is living relatively in isolated
hamlets which are very poorly connected. As pointed out above,
these habitations/hamlets having less than 500/100 population are
deprived from the rural connectivity programmes of Government of
India and do not qualify for Central assistance.
(ix) The Naxal problem affecting as many as 15 revenue Districts of the
State requires special interventions to remove the basic causes of
discontent,
dis-affection and sense of elimination from the main stream by a
section of the population which has concentrated in hilly and forest
terrain. The disparity in availability of fiscal developmental and
social infrastructure in the Naxal affected areas is to be removed.
The expert group set up by the Planning Commission on
“Development issues to deal with causes of discontent, unrest and
Extremism” have recommended for universalization of basic social
services as per national norms. These measures cannot be
implemented by the State Government alone and specific
assistance is needed.
(x) The location of the State on the eastern sea board has made it
vulnerable to recurrence of severe cyclonic storms which wreck
havoc in the coastal belt. The revisiting or recurrence time of a
severe storm and storm to the Orissa coast is around 4 years and 2
years respectively which is much less than that of the other States.
Further the State’s river system with deforested catchment area
experiences flash floods owing to rise in the level of the river bed
through siltation. Erratic visit of monsoon also causes severe drought
in rain-fed areas. These calamities ravage the life and livelihoods of
the populace and impair their coping mechanism. The degree of
vulnerability and severity of the natural calamities to which the
State is prone makes out a case for larger allocation from the
proposed funds for Disaster Response and Disaster Mitigation.
(xi) Inspite of natural resource endowments like large deposits of major
minerals, the State has not yet been able to realize adequate

Memorandum to 13th Finance Commission

355
 revenue from this potent source because of the method of fixation
of royalty and delay in its timely revision. Neither royalty is fixed by
the Central Government as per market value nor is revised at
periodic intervals. The loss suffered by the State Government on this
account has not been compensated although recommended by
11th and 12th Finance Commissions. The present receipt from royalty
is likely to decrease because of recession in mineral based trade
and industries. More buoyant revenue from mineral royalty would
enable the State Government to more generously share the
benefits of mineral based industrial growth with the local population
affected by mining activities.
(xii) Orissa is a pioneer in power sector reform. The State has fully
privatized the distribution of electricity while in other States(except
New Delhi) the distribution business is being carried out by
Government companies and huge amount of subsidy is being paid
by the respective State Governments. National Electricity Policy
aims at availability of electricity to all households by 2012. This would
require extension of transmission network to those areas which are
highly un-remunerative. Maintenance of existing network is also a
problem. Since Orissa has done pioneering work in power sector
and other States have learnt from the experience of Orissa, the
Finance Commission should provide incentive to the State for
upgradation of distribution system and transmission network in the
State.
(xiii) In recent times, resource bearing States are able to attract
investments from both national and international fora. Resource
development creates land alienation and deterioration, land
morbidity, loss of fertility, loss of traditional livelihood, low income out
of agriculture and other traditional income sources, increased
mortality from environment health hazards and large scale
displacement. Environment impact of resource development is
tremendous which is already felt in the State in irregular monsoon,
cyclonic storms and heat conditions. The State is alive to the threats
to the environment and ecology and has been trying its best, within
the financial constraints, to control the environmental degradation.
However, substantial assistance is required to protect and liven the
environment assets of the State.
(xiv) In the past on implementation of recommendations of the 5th
Central Pay Commission, the State slipped into huge deficit,
overdraft and became a debt stressed State. Only recently the
State has recovered from fiscal crisis. State has already
implemented the recommendations of the 6th Central Pay
Commission. The actual financial burden on such account would
be huge and can only be estimated at present. This financial
burden would be unsustainable and since the State does not have
a wide resource base the State may again slip into deficit and

Memorandum to 13th Finance Commission

356
 debt. The Commission should, therefore, consider bearing the full
cost of the impact of 6th Central Pay Commission.

Conclusion

Orissa has been recognized as a reforming State by Government of

India and multilateral Aid Agencies partnering with the State Government
for carrying out structural adjustment programme and sectoral reforms.
The reform efforts of Orissa has yielded positive results in terms of fiscal turn
around. The State has also been eligible to avail incentive grant and fiscal
performance based debt relief recommended by the 11th & 12th Finance
Commissions. The State Government are also following a prudent debt
and cash management policy and are making all attempts to achieve
debt sustainability. The fiscal turn around has been possible through a
painful adjustment process. This turn around has not brought about any
significant improvement in the fiscal capacity of the State to cater to its
developmental needs and growth deficits. It may not be possible to
withstand exogenous shocks like the adverse impact of a global recession
accompanied by slow down in economic growth, decrease in exports,
falling revenues and a sharp rise in revenue expenditure on
implementation of the 6th Central Pay Commission recommendation. In
order to carry forward the fiscal consolidation process initiated under the
aegis of 11th & 12th Finance Commissions and also to rescue the State
from slipping into fiscal stress, suitable transfer mechanism should be
devised which will not only bring about fiscal stability for State but also
foster Macro Economic Growth & Stability.

Memorandum to 13th Finance Commission

357
Introduction:

Hon’ble Chairman, Dr. Vijay L Kelkarji, Hon’ble Members,

Secretary and other Officers of the Thirteenth Finance
Commission, Members of Council of Ministers, Chief Secretary,
Senior Officers of the State Government, I extend a hearty
welcome to you all and hope that the brief stay of the
Commission in the State would be pleasant and memorable.

The Thirteenth Finance Commission is headed by a

renowned Economist and distinguished expert on Taxation. The
Members are persons of eminence in their respective fields. I
sincerely hope that the Commission would definitely appreciate
and address the special needs of developing States like Orissa.

2. Orissa is a developing state having many critical needs. It

is well known that Orissa’s development has been slow because
of several reasons. However, in recent years MoUs have been
signed with various industrial houses to set up industrial
projects in the State. But in view of global recession the
prospect of these industries in the State is likely to receive a
set back. Since the economy is heading towards a down-turn,
this will also affect the collection of State’s Own Tax and Non-
Tax Revenue adversely along with a diminished share in
Central Taxes. The fact of reduction in Shareable Pool of
Central Taxes has already been reflected in the Interim Budget
of Union Government presented a few days ago. So the role of

358
the Thirteenth Finance Commission assumes critical
significance for poorer States like Orissa to overcome this
critical phase of the economy.

3. How Orissa was deprived of due share under Tenth

and Eleventh Finance Commissions:

Orissa was deprived of its due share both by the Tenth

Finance Commission and the Eleventh Finance Commission for
which the finances of the State were not only badly affected
but structural imbalance also set in. This had wide ranging
ramifications on the economy of the state. The Tenth Finance
Commission reduced the State’s percentage share in tax
devolution out of the divisible pool to 4.256% from the level of
4.851% recommended by the Ninth Finance Commission. The
grant-in-aid awarded by the Tenth Finance Commission was
also reduced to 4.46% from 6.93% recommended by the Ninth
Finance Commission. As a percentage of the aggregate transfer
of resources recommended by the Tenth Finance Commission,
it was 4.28% as against 5.21% of the aggregate transfer
recommended by the Ninth Finance Commission.

The State also did not receive a favourable dispensation

from the Eleventh Finance Commission. The percentage share
of Orissa from the divisible pool was raised on the one hand
and on the other hand the share in the grant-in-aid was
reduced. The share of the State in terms of percentage of the

359
aggregate transfer under the Eleventh Finance Commission was
below the level recommended by Ninth Finance Commission.
The State also had to sustain loss on account of under-pitching
of the expenditure on Interest and Pension payments and
overestimation of the receipts by a wide margin. As a result of
such imbalance in the assessment, the State had to lose more
than Rs.7500.00 crores during the award period of Eleventh
Finance Commission beginning from the year 2000-01 to
2004-05.

4. Award of the Twelfth Finance Commission:

In contrast, the favourable dispensation of the Twelfth

Finance Commission has been beneficial to Orissa. There was
an increase in the State’s share in Central Taxes to the level
higher than the level recommended by the preceding three
Finance Commissions. There was also a substantial step up in
the grants recommended by the Commission. The Commission
also recommended some path breaking measures like
application of equalization approach on the expenditure side.
Two critical areas like Education and Health were the focused
areas and equalization grants were recommended for these two
sectors along-with grants for maintenance of public roads and
buildings. These grants went a long way to supplement the low
fiscal capacity of the developing States and enabled them to
have better social and physical infrastructure so as to improve
the quality of life of the people at large. The fiscal performance

360
based Debt Consolidation and Relief Facility recommended by
the Twelfth Finance Commission has also helped in fiscal
consolidation. It is worth mentioning that Orissa had enacted
the fiscal responsibility legislation with a rule based fiscal and
debt management policy. As a result of favourable dispensation
from the Twelfth Finance Commission and the fiscal reform
measures initiated by the State Government, the fiscal targets
could be achieved much ahead of the prescribed time line.

Tax sharing formula – both horizontal and vertical:

5. In a federal set up like India, the taxation power is

heavily tilted in favour of the Centre. The States have higher
expenditure commitments because of allocation of more
number of functions having a direct link with the people.
Because of rising hopes and aspirations of the people,
improvement in the quality of services delivered by the state
Government has become imperative. However, the limited
power of the State Government to raise resources for
effectively discharging the functions allocated by the
Constitution calls for increase in the quantum of tax devolution
to the States.

6. The Empowered Committee of State Finance Ministers

have posed before the Commission, to increase the share of
the States to 50% of the net proceeds of central taxes and
duties from the existing level of 30.5%. I fully endorse the

361
stand taken by the Empowered Committee. The Export Duty on
Iron ores and Chrome ores should be passed on fully to the
mineral bearing states as these states bear the negative effects
of mining industries in terms of environmental degradation,
depletion of natural resources and displacement of the local
population. These States, in spite of being rich in mineral
resources, are less developed and need additional resources to
cater to their developmental needs.

7. The continuance of a number of surcharges and cesses on

the Central Taxes for a longer time deprive the States from
accessing such revenues as they are kept out of the
constitutionally mandated shareable pool. These surcharges
and cesses ought to be temporary measures to provide
resources for a specific purpose. On being continued for long
periods such instrumentalities provide extra handle to the
Centre to levy and appropriate additional revenue. Therefore,
in the interest of equity and fair play, any surcharge, if
continued beyond a period of one year, should continue to form
a part of the divisible pool.

8. There is a wide disparity among the States in terms of

area, population, per capita income, resource base, availability
of social and physical infrastructure etc. The States with better
access to economic factors and infrastructure were at a greater
advantage to reap the benefits of the economic reforms and
attracted higher capital investment as compared to the poorer

362
States. Therefore, in order to provide a level playing field to
the less developed States like Orissa, increased share of tax
devolution may be granted to overcome their socio-economic
handicap and come up to the level of their developed
counterparts. The Commission, is therefore, urged upon to
adopt the criteria of population below poverty line,
infrastructure index, fiscal discipline and concentration of SC
and ST population with respective weights of 50%, 20%,20%
and 10% while determining the inter-se distribution of
shareable taxes and duties.

In this connection, it is further submitted that the

devolution of central taxes in the recent past had no certainty
about the quantum of the flow as there was wide fluctuation
between the amount of tax devolution assessed by the Finance
Commission for a State and the actual release by Government
of India. The State Government had to endure shortfalls of
resources relating to its share in Central Taxes to the extent of
nearly Rs.3663 crores during the award period of the Eleventh
Finance Commission. This reduced the availability of resources
for the State’s plan programmes. In order to obviate such
difficulties and to impart a degree of certainty to the devolution
of Central Taxes, the Commission should set a floor level for
tax devolution to each State equal to the assessment made by
the Finance Commission.

363
9. Critical issues – negligence of Centre:

The State is suffering from many disabilities due to

deficiencies and shortcomings of national policies in certain
critical areas. The national policy on Minerals and Mining
royalty, design of the APDRP (Accelerated Power Development
and Reform Programme) scheme during the 10th and 11th Five
Year Plan period are a few examples of the lack of proper
attention to the legitimate claims of the State Government.

i) Mining royalty -

Since the revision of the rate of royalty of major

minerals is in the hands of the Central Government and the
royalty structure is primarily based on the quantity of the
minerals dispatched for sale instead of its sale price, the
State Government have no scope to optimize collection of
revenue on minerals. The Eleventh Finance Commission
recommended that the delay in revision of royalty should be
suitably compensated. The 12th Finance Commission
recommended that royalty being an important source of
revenue of some of the States, the rates of royalty should be
fixed on ad-valorem basis. Besides, in certain cases, like
Chrome ore, the royalty is levied on the benchmark price
fixed by Indian Bureau of Mines instead of the actual sale
price which is much higher. Delay in periodic revision of
royalty also affects the revenues of the State. The State

364
Government stand to lose due to delay in revision of royalty
on coal. Similarly, the loss sustained by the State
Government on adoption of the hybrid system (Tonnage &
Price) instead of ad-valorem basis needs to be compensated.
Further, a huge amount of loss is incurred on account of
continuance of the existing system of royalty on Iron Ore on
tonnage basis instead of the proposed ad-valorem basis.
These issues could only be addressed through rationalization
of the royalty regime by a change-over to full ad-valorem
basis or by aligning it with international best practices.

The Commission, should therefore, deliberate on the

issue of timely revision of royalty rates of major minerals as
well as the modality for fixation of royalty and also take into
consideration its impact while assessing the State’s revenue
resources.

ii) Power sector reform -

Orissa was the pioneer in power sector reform and was

the first State to un-bundle the State Electricity Board. It has
established a Regulatory Commission for tariff setting and
privatized the electricity distribution business to bring in
efficiency and reduced the transmission and distribution loss
through private enterprise and investment. The generation
and transmission sectors have become viable and the State
Public Sector Undertakings have lined up investment

365
programmes in the generation and transmission segments.
However, the reform in the distribution sector could not
bring about the desired result for which there is prevalence
of high level of transmission and distribution loss. Perhaps
Orissa is the only State which has not provided revenue
subsidy to any category of electricity consumers in the Post-
Reform era.

It is disheartening to note that the full benefits of

APDRP Scheme were not available to the State Government.
When other States could leverage incentives under the
scheme, Orissa got nothing, in spite of being the first
reforming State in the Power Sector, because of the fact that
the distribution business in Orissa was privatized. The
incentive component of the scheme was not released
although there was reduction in loss by the Distribution
Companies. Had the grant been released during the 10th plan
period, it could have been utilized for system improvement
in the distribution segment. The re-designed APDRP during
the 11th Plan period is also going to by-pass Orissa as it will
not be applicable to private distribution entities. Since
viability of the distribution business holds the key to the
turn around of the power sector, the Commission should
appreciate the problem and impress upon Government of
India to modify the policy guidelines under APDRP and make
the privatized distribution companies (DISTCOs) of Orissa
eligible for APDRP assistance or pass on these assistance

366
through one of the State-owned undertakings in the Power
Sector.

10. Low Socio-economic Indicators:

Orissa has been one of the less developed regions of

India with high incidence of poverty and more than one third
of the total population belong to economically and socially
disadvantaged groups like Scheduled Castes and Scheduled
Tribes. Endowed with rich mineral resources, Orissa could
have been a vibrant industrialized State but for several
factors which hindered its growth. In the post liberalization
scenario strong fiscal correction measures taken in the
recent years have helped the State in becoming one of the
fastest growing States of India. Yet the State’s growth is
impeded by several adverse socio economic indicators like
high Infant Mortality Rate, lack of access to Safe Drinking
Water for many households, lower per capita income below
the national average, highest percentage of population below
the poverty line as per the Poverty Estimates of 2004-05.
However the State has been making sincere efforts to bring
about rapid development but can not do so on its own
because of fiscal constraints.

367
11. Lack of Key Infrastructure:

The State does not have adequate critical infrastructure

like National Highways, Railway connectivity, Ports and
telecommunication facilities etc. Although the State has a
long coast line of 480 Kms i.e. 6% of the total coast line of
the Country, it has only one major port. Similarly, Railway
network has not spread widely across the State and many
strategic locations are without railway link. There is need for
large public and private investment for development of these
infrastructures. The towns and cities of the State do not
have adequate infrastructure to cater to the needs of ever
rising urban population. The urban infrastructure including
low cost housing, sewerage and sanitation facilities and
public transport system are to be developed on a priority
basis. Hence the need for a substantial resource support
through the award of the Thirteenth Finance Commission is
crucial for the State.

12. Debt relief:

The Debt Consolidation and Relief Facility has benefited

the State Government in many ways. The consolidation of
loans and lowering of the interest rate have helped in
reducing the interest expenditure. The debt write off on the
basis of fiscal performance have helped in relieving the State
Government of repayment liability. On the whole, it helped

368
the State Government in progressing towards fiscal and debt
sustainability. There is a need for continuation of such a
facility to put the State Finances on a sustainable path in
view of the historic debt induced Central Plan Assistance and
high interest rate on NSSF (National Small Savings Fund)
accumulations.

The back to back arrangement for availing external

assistance introduced by the Twelfth Finance Commission
has also passed on the exchange rate risk to the State
Governments. Therefore, the Commission should prescribe a
limit to it in order to avoid any currency mis-match with a
mechanism for hedging the exchange rate fluctuation risk.

Since the debt consolidation and relief facility

recommended by the Twelfth Finance Commission benefited
the state, it should be continued by the Thirteenth Finance
Commission. Besides, the interest rate on NSSF should be
lowered to 7.5% after consolidation of all loans availed from
Government of India. The rate of interest of old EAP
(Externally Aided Project) loan should also be brought down
to 7.5%. While fixing the Annual Borrowing ceiling of the
State, due consideration should be given for the
developmental needs of the States like Orissa.

369
13. Grants for Equalizing expenditure on Economic
and Social Services:

In view of the inadequacy of social and physical

infrastructure and low fiscal capacity of the State, the
Commission may continue the equalization grants for the
Education and Health Sectors by increasing the percentage
of equalization applied by the Twelfth Finance Commission to
30% and 60% respectively for which the State Government
would need a grant of Rs.1032.70 crore for the Education
Sector and Rs.648.06 crore for the Health Sector during the
award period of the Commission. Further, specific grants for
Public Buildings, Roads and Bridges may also be extended to
other economic services like Irrigation and Flood Control and
Water Supply and Sanitation.

14. Grants for Local Bodies:

The State Government have constituted the Third State

Finance Commission for recommending transfer of resources
to the Local Bodies by the State Government. The Thirteenth
Finance Commission may consider to provide grant in aid to
the extent of Rs.10841.65 crore and Rs.2978.89 crore to
augment the Consolidated Fund of the State so as to
supplement the resources of the Rural and Urban Local
Bodies respectively during the period from 2010-11 to 2014-
15. While considering this demand of the State Government,

370
the First Report of Third State Finance Commission may also
be taken into consideration.

15. State Specific Needs:

The problem of left wing extremism affecting as many

as 15 Revenue Districts of the State requires special
intervention by the Commission. Lack of adequate
connectivity, inadequate access to basic minimum services
like education and health care facilities at par with developed
areas, disparity in availability of physical, developmental and
social infrastructure in these areas are some of the main
causes of the problem of such extremism.

A special dispensation for the State Government may

be provided by the Thirteenth Finance Commission under the
State Specific needs for socio-economic development and
strengthening the law enforcement machinery to combat the
threat to maintenance of law and order and internal security.

The Commission is empowered to take into account the

specific needs of the State Government for effective delivery
of public goods and services. The areas in which such
assistance is required is indicated in the Memorandum
submitted to the Commission. The Commission may
favourably consider the demand of the State for Grant-in-Aid
of Rs.16,387.36crore for State Specific needs.

371
16. Natural Calamities:

Orissa is highly vulnerable to natural calamities like

cyclones and floods and recurrent drought in case of failure
of the monsoon. The recurrence of the natural calamities in
the State affects the State’s economy, developmental
process and the coping mechanism of the people. Except for
the repair and restoration measures out of the Calamity
Relief Fund, there is no provision for permanent Disaster
Mitigation Work from the Fund. These works are to be
provided by the State Government out of its own resources
or accessed from external donor agencies. In the calamity
affected areas, the State Government provides
exemption/remission of Government dues. In view of the
adverse impact of the natural calamities on the economy of
the States, the additional allocation of 30% for low income
States should be allowed and the State’s contribution should
be brought down to 10% from the existing level of 25%. The
corpus of Calamity Relief Fund may be increased to
R.4000.00 crore for the entire award period of 2010-15.
Similarly, the corpus of NCCF (National Calamity
Contingency Fund) should be doubled and the release from
NCCF should be based on explicit norms. For disaster
mitigation works an amount of Rs.7431.64 crore is posed
before the Commission for consideration.

372
17. Ecology and Environment:

Government of India have taken a timely step in

incorporating the need to manage ecology, environment and
climate change consistent with sustainable development in
the terms of reference of the commission. It is an
acknowledged fact that climate change poses a serious
challenge to development. The environmental assets of the
State have a serious threat perception from rapid growth of
industrial and mining activity as well as encroachment and
degradation of the forests. The State Government would,
therefore, urge upon the Commission to provide grants for to
the extent of Rs. 1450.00 crore for financing developmental
and conservation measures to protect the forest areas of the
State. In addition, the State Government would also request
the Commission to provide grant of Rs. 655.00 crore for
maintenance and rehabilitation of the environmental assets
of the State.

18. Goods and Services Tax:

Although the timeline for introduction of Goods and

Services Tax has been indicated as 1st April, 2010, the road
map for its introduction and the proposed model have not
yet been finalized. It is needless to mention here that
introduction of GST should not distort the constitutionally
guaranteed fiscal autonomy of the States and take away

373
their taxing power. At the same time, the interest of the
State should be protected by design of a suitable
compensatory mechanism in case of any loss suffered by the
State Government. In no case, the State would agree to
unified GST model at the central level which severely
compromises on the taxing power of the States and their
autonomy guaranteed by the Constitution.

19. Impact of Sixth Pay Commission and Global

recession:

The recommendations of the Sixth Central Pay

Commission have cast a huge financial burden on the State
Government requiring revision of Pay and Pension of the
State Government employees. It may be recalled that it took
a number of years for the State to recover from the impact
of the fiscal shock of the recommendations of the Fifth
Central Pay Commission. The State Government have
already implemented revision of pay scales and pension on
the basis of the recommendations of the Sixth Central Pay
Commission from 1st January, 2006.

The global recession has hit the national economy and

also started to impact the finances of the State Government.
This situation calls for a collective response at all levels. In
order to counteract the impact of economic meltdown,
substantial transfers from the Central government on the

374
recommendations of the Finance commission should be
considered for the States with low resource base like Orissa.

The Commission may take into account the impact of

recession, the burden on the State on account of Pay and
Pension revision while recommending the assistance needed
by the State.

20. Fiscal discipline:

It is needless to mention that Orissa has emerged out

of severe fiscal stress through various reform measures. It
has achieved almost all the fiscal targets set by the Twelfth
Finance Commission and enacted the Fiscal Responsibility
and Budget Management Act. The Commission should
formulate a suitable fiscal transfer mechanism as a reward
for the fiscal discipline and performance exhibited by the
State Government in the recent years and enable it to
realize its full growth potential.

We have made our detailed submission in the

Memorandum submitted to the Commission. The basis of
forecast of receipts and expenditure has also been indicated
separately. I have only tried to explain some of the
important areas concerning the State’s developmental and
fiscal needs. I am sure that the Commission, under your able
Leadership and guidance would take a holistic view of the
fiscal problems afflicting the State and the developmental

375
needs with reference to its fiscal capacity. I am hopeful that
the Thirteenth Finance Commission would provide a
favourable and special dispensation to the State in order to
strengthen its financial base and enhance its ability to make
adequate investments in social and physical infrastructure to
develop Orissa at a faster pace. In this connection, I would
also like to draw the attention of the Hon’ble Chairman that
consideration of equity is equally important as efficiency
parameter in arriving at a fair and just dispensation. I do
hope that the Thirteenth Finance Commission will address
the special needs and concerns of a developing State like
Orissa so that it can fulfill its obligation to the people of
Orissa in ensuring their speedy development and progress.

Jai Hind.

376
 THEMES COVERED
FISCAL REFORMS, CHALLENGES
AHEAD IN THE CONTEXT OF INCLUSIVE
— Critical Gaps in Development
GROWTH AND SPECIAL NEEDS
— Fiscal Recovery and Challenges Ahead
— Sectoral Innovation in Government
— Assessment by previous FCs and Actuals
— Basis of Forecast
— Suggestion to the 13th Finance Commission.
¡ Devolution of Central taxes

¡ Grants-in-Aid

PRESENTATION ¡ Debt Consolidation and Relief facility

TO ¡ VAT and Goods & Services Tax
THIRTEENTH FINANCE COMMISSION ¡ Calamity Relief

¡ Grants to Local Bodies

FINANCE DEPARTMENT
GOVERNMENT OF ORISSA
2 6 th February, 2009

Orissa in Brief

— Orissa is one of the major States of India situated on the

east coast of the country.
— Its geographical area is 1,55,707 sq. Km and occupies 9 th
position in the country.
Critical Gaps in Development
— It’s population is 3.68crore as per 2001 census and occupies
11 th position in the country. The density of population is 236
against national average of 324. SC & ST population
constitute 38.66% of total population.
— The State is mainly an agrarian economy with about 70% of
population depend on agriculture. Industrial Process
boosted up in recent years.
— The State has a coast line of 480 Kmsand rich endowment
of mineral resources.

Selective Socio-Economic Indicators Percentage of Population Below Poverty Line

60
Indicators Orissa All India
50
IMR 73/ 1000 57/ 1000
40
Life Expectancy 59.2 62.3
30
Literacy 63.08% 64.84%
20
School Enrolment 108.47 93.54
10
Human Development Index 0.404 0.472
0
Households with Safe Drinking Water 64.2% 77.9%
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Per Capita Income Rs.16195/- Rs.24256/-

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Population Below Poverty Line 46.4% 27.5%

An

Productivity in Agriculture 13.41 qtl./hec. 17.31 qtl./hec.

Urban Rural Total

1
 Need for Accelerated Growth Major Constraints to Growth

— Orissa is lagging behind in Social and Economic — Started with low base in Physical Capital and Human
Indicators Capital- Right from 1936 when the State of Orissa
— Growth Led Development and Support Led was formed.
Development — Manufacturing Base Low –Trade & Commerce Low
— Orissa needs both — Special Human Capital Need –ST 22% & SC 16%
— Fiscal correction to release resources for growth
— Impact of Global Recession

Major Constraints to Growth Major Constraints to Growth

• Prone to Natural Calamities – — Consequence to Growth of Recurring Natural

Year Calamity Calamities
1999-00 Super cyclone
¡ Wide swings in Growth Rate
2000-01 Drought
2001-02 Flood
¡ Natural Calamity – Direct Impact on Agriculture and Rural
Economy.
2002-03 Drought
¡ Take the State away from Potential Growth Path
2003-04 Flood
2004-05 Flood ¡ Natural Calamity pulling resources from other sectors.
2005-06 Flood ¡ Hindrance to Revenue Generation.
2006-07 Flood
2007-08 Flood
2008-09(June & Sept.) Flood
Affected by Natural Calamities on a regular basis – whatever
timescale you use

Growth Rate of GSDP Immense Possibilities

25.00%

Current Prices
— Untapped irrigation Potential
20.00%
Constant Prices — Mineral Endowment
— Fisheries
15.00%
— Forest Wealth
10.00% — Tourism
— Need for Investible Resources
5.00%
— Maintenance of surplus on Revenue side is of critical
0.00%
importance
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
(Q) (A)

-5.00%

2
 Pre-Reform Fiscal Situation

— Grim Fiscal Situation in 1999-2000 leading to Fiscal

Imbalance
¡ Large and unsustainable Revenue Deficit : 6.05% of GSDP
¡ Large Fiscal Deficit : 8.94% of GSDP
Unsustainable Debt Level : Debt Stock/ Revenue Receipt ratio
Fiscal Recovery and Challenges Ahead ¡
above 300%
¡ High Debt Servicing Cost : Expenditure on account of debt
servicing was of the order of 50% of Revenue Receipt
¡ Liquidity crunch leading to over dependence on W&M
Advance and O.D : Treasury remained closed during most part of
the year
¡ Fiscal stress Affected Growth : Ability to provide Funds for
Development was severely affected

MoU and Reform Measures Undertaken Revenue Step-up Measures

— Signing of MoU with Government of India in 1999 & 2001 — Rationalization of Sales Tax Rates
to implement an agreed set of reform measures.
— Introduction of Entry Tax from November, 1999.
— Formulation of Medium Term Fiscal Plan withmonitorable
fiscal targets. — Introduction of Tax on Profession
— Enactment of Fiscal Responsibility Legislation in 2005. — Introduction of VAT w.e.f.1.4.2005
— Computerization of Commercial Taxes
Organization
— Rationalization of Stamp Duty & Registration fees
and steps to check under valuation.

Expenditure Compression Measures Reform Outcomes

— No subsidy to Power Sector after Power Sector Reform

since 1996-97.
— Public Enterprises Reform – Closure & Privatization of loss TFC Targets Actual Achievement/ Projection
making PSUs – Reduction in Budgetary support 2004-05 2005-06 2006-07 2007-08
— Reduction in explicit subsidy (Actuals) (Actuals) (Actuals) (Actuals)

— Freeze on service benefits to employees like SLS, LTC etc. Salary/Net Rev. Exp 35% 51.11% 49.70% 41.01% 35.38%
— Introduction of new VR Scheme Interest / RR 15% by 2009- 10 28.12% 26.25% 17.68% 14.43%
— Freeze on fresh recruitments & contractual appointment on
consolidated salary in essential sectors like Health Care & Revenue Deficit/ GSDP 0% by 2008-0 9 -0.73% 0.61% 2.42% 3.99%
Primary Education etc. & also redeployment
Fiscal Deficit/ GSDP 3% -1.91% -0.35% 0.88% 1.24%
— Defined Contributory Pension Scheme has been introduced
w.e.f. 1.1.2005 for the new recruits in the regular Debt Stock/ GSDP 28% 47.68% 46.17% 39.89% 34.11%
establishment.

3
 Status on observations of the 12 th FC Sectoral Trend in Expenditure

— The Revenue Deficit/GSDP Ratio of Orissa during 2000-03 was 4.91% only
second to West Bengal. Revenue Surplus of 3.99% of GSDP generate d in 2007 - 60.00%

08.
— During 2000-03, Orissa became the highest fiscal deficit State. Fiscal Deficit 50.00%

contained within 3% of GSDP since 2004-05.

— Orissa had the highest Debt/GSDP ratio during 2000-03 at 63.7% followed by 40.00%
Uttar Pradesh at 47%. The ratio has come down to 34.11% in 2007 -08.
— Revenue Expenditure to GSDP ratio has increased by 5.7% during 2000- 03 only 30.00%
next to Gujarat (5.9%). The ratio has come down by 6.8% during 2003-08.
— Orissa and Rajasthan had large increases in their IP-TRR ratios at 13.5% and 20.00%
13.2% during 2000-03. Since 2003-04 there has been reduction of this ratio by
52.4% by 2007 -08. The ratio has improved continuously since 2003-04 and at
the end of 2007 -08 stands at 14.43%. 10.00%

— Expenditure on Salary relative to revenue expenditure (excluding interest

payment and pension) was 65.5% for Orissa as against all State’s average of 0.00%

37.7% during 2002-03. The ratio for Orissa is improving continuously to reach 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

to a level of 35.38% in 2007 -08.

General Services Social Services Economic Services

Challenges Ahead Sectoral Innovation in Government

— The Additional burden on account of revision of Pay and Pension — Computerization of all Treasuries
has put huge pressure on State Exchequer ¡ Improved Budgetary Control
— The Global recession has badly affected the State’s Own Tax and ¡ Better Financial MIS
Non -Tax Collection. ¡ Real Time Monitoring
— The Share in Central Tax has started going down. — Computerization of Tax Administration
— Lower level of development of the State necessitates higher Plan ¡ Improved Monitoring Mechanism
investment especially on Capital Account.
¡ Better Compliance
— Higher Expenditure needs and falling resources may force the State
to go for higher Borrowing. For a poor State like Orissa havinga — E-Procurement
poor resource base, this will again take the State back to Debt Stress. ¡ Dedicated e-procurement Cell created in Works department
¡ Procurements above Rs.20.00lakh is processed through e-
— The State needs special consideration in view of good fiscal
performance to continue the development momentum, there is procurement System
necessity of intervention of Centre and we need specialdispension ¡ Improved Transparency, Accountability and quality of Public
from Finance Commission. Expenditure

Contd..

— Zero Based Investment Review

¡ Infrastructure Projects above Rs.1.00crore are taken up on
priority basis for completion
¡ As on 31.3.2008, 295 projects have been completed under this
Assessment by previous FCs and
scheme Actuals
— Industrial Sector Reforms
¡ Single Window Clearance Mechanism
¡ PPP Policy announced
¡ Investor Friendly IPR, 2007 introduced

¡ Cluster Development Programme

¡ Development of Sector specific Industrial Parks

4
 Assessment of 10th & 11th FC and Actuals Estimation by the 10th FC and Actuals

10th Finance Commission (1995-2000) 11th Finance Commission (2000-05) 30000

Assessment Assessment 25000

by the Actual shortfall by the Actual shortfall
Commission Commission 20000

Non-Plan Revenue 15000

Receipt 10626.36 10081.09 545.27 19108.33 18867.54 240.79

Rs. in crore
10000
Non-Plan Revenue
Expenditure 19778.9 23319.5 -3540.60 37985.79 44403.32 -6417.53
5000
Pre-Devolution NP
Rev Deficit -9152.54 -13238.41 4085.87 -18877.46 -25535.78 6658.32 0
NPRR NPRE Pre-Devolution NP Devolution of Post-Devolution
Devolution of Rev Deficit Central Taxes NP Rev Deficit
-5000
Central Taxes 8783.41 7888.74 894.67 19026.64 15363.97 3662.67
Post-Devolution -10000
NP Rev Deficit -369.13 -5349.67 4980.54 149.18 -10171.81 10320.99
-15000
NP Rev Deficit
Grant 371.74 371.74 0.00 673.60 673.60 0.00 Assessment by Commission Actual

11th FC Assessment and Actual

50000

40000

30000

20000
Basis of Forecast
Rs. in crore

10000

0
NPRR NPRE Pre-Devolution NP Devolution of Post-Devolution NP
Rev Deficit Central Taxes Rev Deficit
-10000

-20000

-30000

Assessment by the Commission Actual

Basis of Forecast

— Own Tax and Non -Tax Revenue projected to grow at about 10% and
6% respectively.
Expenditure on Salary and Pension forecast made taking into
Submission to 13th Finance
—
account the impact of 6 th CPC recommendation.
—
—
Interest Expenditure projected to grow at 7.5%
O&M Expenditure estimated on the basis of recommendations of
Commission
the Norms committees.
— Subsidy on Rice estimated taking into account the impact of Rs.2/-
per Kg rice scheme
— Other Expenditure in General, Social and Economic Services have
been projected with growth rates of 10%, 15% and 15% respectively
— Transfer of Committed Liability at 30% of Plan Revenue
Expenditure at the end of 11th Plan Period

5
 Devolution of Central Taxes Horizontal Transfer

— Population below poverty line represent poverty in a

— Vertical Transfer: better manner compared to per -capita income distance
¡ The 13th Finance Commission may consider transfer of50% of hence may be assigned a weight of 50%.
net proceeds of Central Taxes to the States. — Infrastructure needs is one of the major challenges for the
¡ The Commission should lay down clearly the norm for cost of
poor States like Orissa hence may be assigned a weight of
20%.
collection of Union taxes and duties.
— Consistent with the overall approach that equity needs to be
¡ In the principle of fair distribution of resources, any surcharge, balanced with efficiency, Orissa is of the view that the index
if continued beyond a period of one year, should form a part of of fiscal discipline may be given a weightage of 20%.
the divisible pool. — Orissa is of the view that since all other criteria are weighted
¡ Export duty on iron and chrome ore should be passed on by population, there is no need for taking population as
fully to the originating State to compensate for pollution, criteria separately. Rather, the social profile of the
depletion of natural resources and other negative externalities population i.e. the population belonging to SC & ST
category should be assigned aweightage of 10 %.

Horizontal Transfer Grants-in-Aid

— The Grants received as per recommendations of the 12th FC

Proposed Criteria for Horizontal Devolution has been effectively utilized by the State.
SC & ST Population,
— Equalisation grants received under Health and Education
10%
Fiscal discipline,
20%
Sector have helped in improving the Health service and
standard of Education in the State.
— Maintenance Grants for Roads, Bridges and Public Building
has been of immense use for the State for timely maintenance.
— Grant for Heritage Conservation and maintenance of Forest
Population below have been utilised for the purpose.
poverty line, 50%
Index of — Grants under State Specific Need have been quite useful for
infrastructure , 20%
Eco-restoration of Chilika Lake and Sewerage System in
Bhubaneswar

Grants-in-Aid Debt Consolidation and Relief Facility Scheme

— Revenue Deficit Grant should be determined taking into account — The debt consolidation and relief facility has been beneficial f or
both Non -Plan and Plan account. the State Government in progressing towards debt sustainability.
— Equalization Grant for Health, Education should continue with
— On reduction of the rate of interest, the interest expenditure has
higher equalisation of 60% and 30% respectively
gone down and the revenue receipt has also gone up on account
— This should be extended to other sectors where the State has not
been able to spend much because of low fiscal capacity. of the debt relief.
— Grants for maintenance of Roads & Bridges, Public Buildings — Moreover, the loan write-off has helped in bringing down the
(Including Residential Buildings), Forest, Heritage Conservation debt-GSDP ratio.
should continue and should be as per need. — Our State has successfully achieved the required fiscal indicators
— Whilethe end use of the grants may be monitored, the matching and availed the debt write -off @Rs.381.90crore during 2005-06
revenue or NPRE by the States may not be insisted upon. to 2007 -08.
— Grants may be provided for maintaining the ecological endowment
— The State has also been eligible to get the above benefit during
— State specific Need and up-gradation grant proposed for Rs.16387.36
crore may be considered favourably. 2008-09 on the basis of the fiscal performance in 2007 -08.

6
 Submission to the 13th FC on DCRF VAT and Goods and Services Tax

— Continuance of the debt relief scheme in which the — Since introduction of VAT on 1.4.2005, there has been impressive
NSSF loan repayments should also be included. growth rate of about 23% in collection from this source in first 2
— Waiver of 10% of the consolidated debt Stock relating years.
to Government of India at the end of each financial — However, there has been decline in collection to the level of about
year or writing off 50% of the debt stock relating to 9% during 2007 -08 and during the current Financial year due to
Government of India at the beginning of the award the impact of Global economic recession, the growth rate will
period. further decline.
— Lowering of rate of interest of NSSF loans to 7.5% after — The Road Map for the GST is being examined by the Empowered
consolidation of the outstanding Government of India Committee of State Finance Ministers. The State may take a view
loans including NSSF loans as on 31.3.2010. only on basing on the recommendations of the Empowered
Committee.
— The interest rate now charged on old EAP loans should
— However, the State ’s Taxation power and autonomy should be
be limited to 7.5% instead of 9%.
safeguarded in the GST regime.

Calamity Relief Fund: Grants for Local Bodies

— The corpus of Calamity Relief Fund for Orissa may be — The 13th Finance Commission may estimate the minimum need
based expenditure requirements of the local governments
kept at Rs.4000.00 crore for the period 2010-15 with normatively
Centre- state contribution at the ratio of 90:10. — At least five percent of central tax collections (besides the
— The corpus of the NCCF should be raised Rs.1000.00 horizontal tax sharing) should be devolved infavour of the local
crore (i.e. double the size recommended by 12th FC). The governments and following criteria should be adopted for
horizontal distribution
Commission should define the basis on which funds from Components Criteria Proposed to the 13 th Finance
the NCCF should be released in favor of a State needing Commission
Population
assistance from the NCCF most. 10
Index of deprivation 30
— For Disaster Mitigation, total amount of Rs. 7431.64crore Distance from higher per capita income 40
may be provided for the period 2010-15 . Geographical area 10
Revenue effort 10
Total 100

3rd SFC Recommendations Summary of Projection of Requirements

Item Amount
— The Third SFC in their 1 st Report have recommended for transfer (Rs. in Crore)
of Rs.4480.85crore to Local Bodies with ratio of 75:25 to RLBs
Pre-Devolution Non -Plan Revenue Deficit 132141.64
and ULBs (Rs.3360.64crore to RLBs and Rs.1120.21crore to
ULBs) respectively by the State Government and the same is to Maintenance Grants 40572.69
be reimbursed through FC grant in view of the poor Financial Equalization Grant under Education Sector 1032.70
position of the State. Equalization Grant under Health Sector 648.86
— Further, they have recommended to the 13th Finance Commission Up-gradation & state Specific Need 16387.36
for devolution of Rs.8528.07 crore infavour of RLBs and Disaster Management 4000.00
Rs.3453.55 crore forULBs. Disaster Mitigation 7431.64
— Thus the total transfer of fund infavour of the Local Bodies as Creation and Rehabilitation of Environmental Assets 655.50
per recommendations of the 3rd State Finance Commission is
Scientific Management of Forests 1450.00
Rs.16462.47 crore (Rs.11888.81 croreforRLBs and Rs.4573.76
Grants to Local Bodies 16462.47
crore forULBs).
Total 220782.86

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