Sponsored Economy Woes


The Chief Minister, Okram Ibobi’s worry at the thought of the Centre ending the special category status for North East states, ought to be a worry for everybody in the Northeast. With perhaps a little exception in the case of Assam, for the rest of the hill states, including Manipur, this can mean very disturbing scenarios. At this moment, the economies of all of these states are virtually Centrally sponsored, with 90 percent of its budgetary requirements coming as the state’s share of the Centre’s tax resources. Even then, these states have been showing deficits because they are not even able to raise the remaining 10 percent. As “sponsored economies” they have been so used to annual budgets much larger than their actual means that it would be disastrous if their budget sizes were forced to be reduced suddenly.

Consider the case of Manipur. If the approximate strength of government employees in the state is one lakh, and their mean salary is about Rs. 30,000, the monthly expenditure on salaries alone by this conservative estimate would be Rs. 300 crores a month, or Rs. 3600 crores annually. This means the annual non-plan budget size of the state would have to be at least Rs. 3600 crores. What about the plan section of the budget? This can be limitless, as so much roads, hospitals, dispensaries, market sheds, bridges etc, are left to be built… Just to keep the public infrastructures from degenerating and disappearing, probably a plan size that at least matches the non-plan budget would be the minimum requirement. This would make the annual budget requirement total up to Rs. 7200 crores. As of now, states like Manipur cannot probably even imagine raising this kind of money from taxes. Of course, the state will continue to have a share of the Central taxes, but as a non special category state, this will probably be in the vicinity of 10 percent of its annual budget, not 90 anymore.

Although details are not out as yet, the Central government probably means it will take much of the burden of funding the plans these state’s take up, but would leave the states to take care of its non-plan expenditures, of which salaries form the bulk. Can the state, from its own earnings, pay the current salary standards of its employees? At this moment, even simple arithmetic says this is impossible. From the state’s own tax resources, sparing Rs. 3600 crores for this head seems a remote possibility just as yet. But in the unlikely scenario of the Centre insisting this will have to be the case, in all probability government employees will also come to earn by the current actual market standard of Manipur, and like employees in the state’s fledgling private sector, take home around Rs. 5,000 and Rs. 10,000 a month. Or maybe less, for unlike the private sector enterprises, which are forced to live within their means, and therefore do not over-employ, the government sector is full of non working employees, who are either out for tea most of the working hours, or else on cease work strikes.

This scenario is unlikely just as yet. There will be some formula or the other evolved to ensure these states do not descend into total anarchy. But this scare ought to ring the alarm bells. As long as the times are good, perceptions may not change. But if the Indian economy for some reason decelerates and difficult times return, people in richer states whose taxes are subsidising the “sponsored economies” of the Northeast may begin to protest, and budgetary cuts in these states may become unavoidable. Manipur, like the other Northeast states, must introspect seriously on the matter, and begin to learn living within its means. Individual incomes of its people by and large must not be inflated too much above what the real GDP of the state permits. At this moment, this real GDP is stunted and stagnant, though as a sponsored economy it has been growing superficially. The trouble will begin when the sponsors decide not to sponsor. What is grotesque is that this stunted economy also has now thrown up a coterie of contractor-bureaucrat-politician nexus, building opulent mansions and driving super expensive cars. Their narcissistic unconcern of the plight of the larger society and shamelessness of possessing wealth far beyond legal sources of income is simply frightening. If Jared Diamond’s description of ancient societies which once flourished but ultimately became extinct is anything to go by, the emergence of this unconcerned elite does not auger well for Manipur’s future.


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