Odisha sets up stabilisation fund to mitigate future revenue shock

BHUBANESWAR: Odisha which earns a lion’s share of its revenue from the mining and metal sector has set up a Budget Stabilization Fund (BSF), a first-of-its-kind initiative in a state in the country with an aim to neutralize the risk of price shock of metals on the state budget.
The stabilization fund worth Rs 10,000 crore would help the state government to set aside certain surplus revenue for times of unexpected revenue shortfall or budget deficit.
Finance minister Niranjan Pujari said due to the proactive steps in renewal of the mining leases, the state government had a substantially higher collection of mining revenue (over Rs 48,000 crore in 2021-22) years compared to over Rs 13,800 crore in 2020-21), which had been instrumental in meeting the need of higher public expenditure during the pandemic period. Odisha earns nearly 26% of its total revenue from the mining and metal sector.
“We have now been able to acknowledge the substantially higher realization of mining revenue as a positive fiscal shock. Since the international commodity prices are highly volatile, it may turn negative affecting the state budget and public expenditure. So, the stabilization fund has been created from where we can drawdown the resources in case of fluctuation of price,” said Pujari.
Chief minister Naveen Patnaik also hailed the move saying that the initiative will help in mitigating any revenue shock in future.
Welcoming the move, economist Samson Maharana said the move of the state government is a risk management tool and is a welcome move to manage the unexpected revenue shortfall since the state government’s dependence on mining and metal sector to earn revenue is quite high.
Maharana also suggested that the state government should also focus on service sectors like tourism and hospitality, information technology and electronics system design and promoting non-metal sector industries to increase the revenue base.
Meanwhile, state’s overall debt stock which is Rs 1 lakh crore by 2021-22 end is expected to touch Rs 1.12 lakh crore by end of 2022-23 financial year according to the estimate in the annual budget, which will be 15.6% of the state gross domestic product.
A senior finance department official said that with the implementation of Fiscal Responsibility and Budget Management (FRBM) Act 2005, debt has been restrained and debt servicing has been curtailed. “In the last three years, total public debt was less than 20% of GSDP and within the FRBM defined limits,” said the official.
During 2021-22 fiscal, the state government did not opt for market borrowing because funds from low-cost borrowing sources were available, said the official.