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Government of Orissa
Finance Department
No. Bt-I-26/2005-42826(230)/F., Date 03.09.2005


         Shri K.C. Badu, IAS,
         Special Secretary to Govt.


         All Principal Secretaries to Govt.
         Commissioner-cum-Secretary to Govt.

         Secretaries to Govt.
         Special Secretaries to Govt.
         Heads of Department

Sub:  Revised Estimate for 2005-06 & Budget Estimate for 2006-07

1. Budget – a mechanism to achieve accelerated growth
Budget is the mechanism through which medium term economic development plan of the State is operationalised. It should be an instrument through which budgetary outlays are transferred to outputs/outcomes to achieve accelerated growth. Since the Social and Economic indicators of the State are low compared to national figures, there is need for faster growth which has to be achieved by effective and efficient utilization and proper prioritization of limited budgetary resource. Rising and legitimate expectations of the people of Orissa call for better responsiveness, efficiency and accountability on the part of Government.  The management of Government finances has to be prudent and cost effective, oriented towards faster growth and improving the delivery of public services that are vital for overall socio-economic development of the State.
2.      Need for Fiscal Restructuring


Government of Orissa has been implementing a plan for restructuring public finances, through a combination of revenue enhancing and unproductive revenue expenditure reduction measures and debt restructuring efforts.  The deficit on the revenue account has been reduced from Rs.2834 crore in 2001-02 to Rs.1421 crore in 2003-04.  It declined to Rs.414 crore in 2004-05 and is budgeted at Rs.1091 crore in 2005-06.  The medium-term target of Government is to reduce the revenue deficit to zero or less by 2008-09 as provided under section 5(a) of the Orissa Fiscal Responsibility and Budget Management Act, 2005 (FRBM Act, 2005).
3.      Stipulations of 12th Finance Commission

In connection with restructuring the State finances the Twelfth Finance Commission has observed in Chapter 4 of its Report  that

Getting the right size and the right composition of Government expenditure with a view to facilitating achievement of the highest attainable growth rates, and meeting government’s social obligations including poverty reduction and provision of health and education should be considered integral to any plan for restructuring public finances.  This requires increasing public expenditure in social and economic infrastructure for accelerating growth while reducing the overall fiscal imbalance”.

4.      Need to ensure sustainability of fiscal correction.
The fiscal correction achieved over the past couple of years has enabled Government to partly overcome the liquidity bottleneck that was choking the flow of funds for developmental purposes in the past.  The number of days when Government Account was in overdraft with the RBI has declined from 169 days in 2002-03 to 152 days in 2003-04 and nil in 2004-05. The rate of completion of infrastructure investment projects has improved, following a series of Zero-based Investment Reviews conducted during the past 3 years.  The utilization of central assistance for poverty alleviation and social sector programmes has increased steadily, from Rs.534 crore in    2000-01, to reach Rs.2800 crore in 2004-05.  Fiscal space is beginning to be created for improving the developmental orientation of Government expenditure.  In order to sustain this trend so as to achieve the ambitious developmental goals of the state, it is essential to continue with the process of fiscal correction, so that the State achieve few revenue deficit as quickly as possible and ultimately eliminate it altogether, thus enabling the State to use the borrowed resources for productive investments only instead  of diverting to meet the gap in the revenue account as at present.
5.      Statutory obligation to reduce revenue deficit under FRBM Act, 2005.
The goal of reducing the Revenue Deficit to zero by 2008-09 is a commitment stipulated in the Orissa Fiscal Responsibility & Budget Management Act, 2005, which has come into force with effect from 14.6.2005.  The enactment of this legislation makes Government of Orissa eligible for debt relief to the tune of Rs.1881.28 crore, through the consolidation of central loans contracted upto 31.3.2004 and outstanding as on 1.4.2005, according to the recommendations of the Twelfth Finance Commission.
6.      Need to contain the fiscal deficit to the level of 2004-05 to get debt relief.
In addition to providing debt relief by consolidating and rescheduling at substantially reduced rates of interest of 7.5% on the Central loans incurred before 31.3.2004, the Twefth Finance Commission has also framed a scheme of waiver of repayments due on rephased Central loans during 2005-06 to 2009-10.  Under this scheme, the extent of debt waiver in each year is linked to the absolute amount by which the Revenue Deficit is reduced below a notional base figure of 2003-04, which is Rs.2457 crore in case of Orissa.  The reduction in Revenue Deficit achieved during 2004-05 will make Orissa eligible for waiver of repayment of central loans to the tune of Rs.350.26 crore in 2005-06.  In order to avail of a similar benefit during 2006-07, Government of Orissa has to continue to reduce the Revenue Deficit in 2005-06.  Government also has to contain the overall fiscal deficit at least to the level of 2004-05 and reduce it to below 3% of GSDP by 2008-09.

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