Austerity in a COVID-19 world: Tales from Tripura
By Arun Sudarsan and Preethi Govindarajan
The pandemic has upset budget calculations of all states. Tripura is no exception. Will the austerity measures announced help the state mitigate the economic fallout?
Introduction
For quarter of a century, the small Indian state of Tripura was ruled by the Communist Party of India (Marxist) and its allies. Major news stories coming out of Tripura were focussed on the longevity of the ruling coalition, and the then Chief Minister Manik Sarkar, aka the poorest CM in India. In 2018, an alliance of the Bharatiya Janata Party (BJP) and the regional outfit Indigenous People’s Front of Tripura (IPFT) ended his reign. Now, the government led by Biplab Deb faces its sternest test yet — COVID19.
At 8:34 p.m. on April 23, the Chief Minister declared Tripura as corona-free, when the 2nd patient tested negative. The state looked forward to easing restrictions and bringing life back to normal as the lockdown was expected to come to an end within days. However, with less than 24 hours to the end of Lockdown 2.0, a new cluster of COVID-19 was identified — a BSF camp in the northern district of Dhalai. Within days, the number of cases in Tripura crossed 100, becoming the most affected state in the north east, despite the government taking measures to contain the spread of the virus. The Indo-Bangladesh border was closed, buildings and private hospitals were requisitioned as quarantine centres and treatment facilities respectively, interstate travel and mass gatherings were banned, and strict lockdown was imposed.
As is the case with any disaster, spending by states increases to care for the affected. Governments’ income sources also dried up due to the reduction in economic activity. Tripura was one among only eight states to show a positive year-on-year growth of GST collections in March 2020, with a 5% increase. However, as India crossed 1000 cases on April 7, Tripura Cabinet decided to cut salaries of ministers and MLAs by 30% and suspend the Member of Legislative Assembly Local Area Development Fund (MLA LAD Fund) for two years. By the end of April, revenue collections were down drastically, forcing the Chief Secretary to issue a memorandum titled “Austerity measures for achieving economy in government expenditure” for additional savings. Will it help?
Tripura Budget 2020–21
The BJP-IPFT government’s third budget was presented on March 20, just days ahead of the Janata Curfew and Lockdown 1.0. With no positive cases in Tripura, and less than 300 in India, the budget was merely a natural extension of its 2019–20 version. As is the case with other states in the north east, Tripura is heavily dependent on contributions from the central government. In 2020–21, out of the expected revenue of just over ₹19,000 crores, the state’s own revenue is only 14.15%. Contributions from the central government and finance commission account for nearly 74% of Tripura’s total receipts. With declining revenues, it needs to be seen if the central government is in a position to contribute the promised amounts to state governments, including Tripura.
The 2020–21 Budget has allocated nearly ₹4,000 crores for education, close to 20% of the total expenditure and significantly higher than the national average of 15.9%. Proposed expenditure on Rural Development (10.16%), Police (8.21%), and Public Works (9.72%) are also higher than their corresponding national averages. Yet, the allocation for Health is only 5.1%, lower than the national average of 5.3%. The budget does little to accommodate any potential fallout from the pandemic as there has never been any specific allocation toward the prevention and spread of communicable diseases.
COVID-19 and Revenue Streams
Governments finance themselves primarily through taxation. It takes a share of almost every income and expenditure transaction. For e.g., in 2019–20, all-India GST collections touched ₹12,22,131 crores or a daily revenue of ₹3,348 crores for the union and state governments. As the lockdown has now exceeded two months, the estimated loss of revenue is a staggering ₹2 lakh crores. This, especially at a time when governments need resources to manage the crisis.
Nearly 74% of the Tripura government’s revenue or ₹14,269 crores out of ₹19,380 cores comes from the central government and finance commission. GST (₹6.9 lakh crore) and Income Tax on individuals (₹6.4 lakh crore) and corporations (₹6.8 lakh crore) form the majority of revenue for the central government (BE 2020–21). With no end in sight for the human and economic costs of the pandemic, it’s extremely difficult to estimate an exact percentage of loss of revenue. Under the assumption that central grants to Tripura will reduce by 30%, the state is looking at a budget deficit close to ₹4500 crores. This can be plugged only partially by the increased borrowing limit allowed by the central government. Will austerity help?
The Austerity Plan — Will it work?
There are two ways in which a government can find more financial space for itself — reduce expenditure (austerity) or increase revenues (through higher taxation or service fee). With a population of only 36 lakhs, the state can’t expect to increase tax and non-tax revenue significantly, especially when there’s significant loss of income and low consumption. On the expenditure side, a major hurdle in making significant reduction is the high share of committed expenditure in the form of salaries, wages, pensions and retirement benefits, payment of interests and repayment of loans. Together, they account for nearly 67% of all expenditure, one of the highest in India (for context, the share of committed expenditure in total expenditure is 43% in the neighbouring Assam, 55% in Himachal Pradesh, 53% in Uttarakhand and 28% in Bihar). Together with ad-hoc workers, the Tripura government employs more than 1,52,000 individuals. To put that into perspective, on an average, 1 in every 6 households in Tripura has someone employed by the state government! The government cannot, for political and socio-economic reasons reduce these numbers substantially in the near term. Yet, it is imperative that the state plan for a future in which the government is no longer the single largest employer.
The April 28, 2020 memorandum by the Chief Secretary is clear in its objective — it wants the government to “reduce and rationalise avoidable expenditure”. Some of the measures listed in the memorandum are as follows.
- Minimum 15% savings on office expenses and other contingent expenditure
- Minimum growth of 10% in non-tax revenue
- Ban on purchase of new vehicles
- At least 10% reduction in electricity consumption
- Land acquisition to be avoided
- At least 10% reduction in telephone charges
- Outsourcing should be minimised
- Reduce share of salaries, pensions and interest payment towards total revenue expenditure
- Reduce use of paper by adopting e-Office & e-Dak
The savings accrued by the quantifiable measures listed above is estimated to be at most ₹221 crores or ~1.2% of the state budget. Some of the measures listed above will also result in unintended rise in expenditure under other heads. For e.g. a complete ban on purchase of new vehicles will increase fuel and maintenance costs of existing vehicles, a few of which are almost two decades old. The ban may also increase costs incurred to hire vehicles. The 10% targeted increase in non-tax revenue also may not materialize due to the lingering economic effects of the pandemic. A reduction in use of paper would require a phased transition to e-Office which seems unlikely in the near future. The April 7 decision of the Tripura Cabinet to reduce salaries of MLAs and Ministers, and suspend MLA LADF would save an additional ₹36.12 crores, taking the total estimated savings to ₹257.12 crores. To find out if the savings can be used to fight the pandemic and improve the state’s health sector, a closer look at the “health” of Tripura is necessary.
Tripura’s Health Check-up
Tripura is a young state with a mostly rural population, with a substantial percentage belonging to the Scheduled Castes & Scheduled Tribes categories [NFHS-4]. The state faces several challenges with respect to its health outcomes. According to the latest edition of NITI Aayog’s “Healthy States, Progressive India” report, it is ranked 6th out of 8 smaller states with a score of 46.38. Mizoram, which leads the list, scored 74.97. Some of the health indicators for Tripura are mentioned below [NFHS-4, NFHS-3].
Almost 80% of the population depends on public health facilities, this is much larger than the national average of 35% [NFHS-3]. Given this large dependence on the state, it faces many public health difficulties. They can broadly be classified as institutional, financial and educational and within these Tripura’s main shortfalls can be bucketed into:
Well Trained staff especially with knowledge on public health:
Health indicators are likely to show some improvement with better knowledge [1, 2, 3, NFHS-4, India: Health of the Nation’s States]. There is a severe shortfall of healthcare workers and specialists in public health facilities in the state [Rural health statistics]. Increasing budgets to support ancillary health staff and improved training regimes will help. For example: In Tripura, there is 100% coverage of areas with Anganwadi centres. However only 61% of children received some support from anganwadi centres either for nutrition, education or vaccinations [NFHS-4, NFHS-3]. The staff in Anganwadi centres are typically women from poor families with no permanent jobs or comprehensive retirement benefits. Anganwadi workers in Tripura had a huge win in 2017 after demanding increases in salary. This year, 100 crores has been kept aside for the remuneration of anganwadi workers. Hopefully the backbone of rural public health will not be affected too adversely by the economic fallout from the pandemic [OpenBudgetsIndia-Tripura].
The lack of sufficient funds towards preventative measures such as the control of communicable diseases, nutrition programs, and sanitation:
The risk burden from malnutrition and diet have not changed in Tripura since the early nineties and the main reason for death in children is communicable disease [India: Health of the Nation’s States]. The primary reason for mortality (especially among women and children) are diarrhoeal diseases, parasitic infections and waterborne diseases. This can be related to a lack of sanitary conditions, prevalent malnutrition and the lack of emphasis on communicable disease management [1, 2, 3, 4, 5].
Rural health infrastructure requires improvements:
There are around 620 people for each public health facility bed in Tripura with around 5000 beds in all of Tripura [1]. These beds are in the 1020 sub-centres, 108 Primary Health Care Centres (PHC) and 22 Community Healthcare Centres (CHC) [Rural health statistics]. None of them function according to the India Public Health Norms (IPHS) [Rural health statistics]. For eg: 30% of PHC’s are not easily connected by road and almost 70% do not have a telephone connection. 30% of sub-centres did not have regular water supply and electricity. Only one CHC had an operating theatre [Rural health statistics].
Two of these shortfalls are particularly dangerous during an epidemic: The lack of health infrastructure and the insufficient management of communicable diseases. Epidemics firstly overwhelm the health infrastructure. Without effective controls in place for the management of communicable diseases — including infection prevention and control activities, isolation and quarantine, effective communication, surveillance and the management of the deceased — a pandemic would be difficult to reign in.
Rethinking the health budget
As on June 1, 2020 Tripura has 423 cases and these numbers are rising. In order to manage these rising cases or a second wave of this pandemic the government needs to rethink its strategy with respect to the health budget. In 2018–19, spending on health was 1.1% of the Gross State Domestic Product (GSDP), much below the WHO recommended 5%, and also lower than the national average.
This year, Tripura has budgeted ₹1021 crores for the health department which is just 5.1% of total budget. This percentage has been reducing through the years. Tripura spent 1.5% more during 2018–19 compared to the allocations for this year. In order to maintain the same share of expenditure, an additional allocation of ₹323 crores should be made this year. Any long term improvement in the health outcomes requires sufficient capital investment. However, capital expenditure has decreased over the years. This year, the capital outlay on medical and public health is only ₹73 crores, a reduction of over 32% from the actual expenditure in 2018–19.
Will the additional ₹257 crore help? Budget allocations for health statistics and drug control agencies, along with the special nutrition program decreased in 2020–21. There’s also no special allocation for the prevention of spread of communicable diseases. Plugging such funding gaps are crucial in the fight against COVID.
Conclusion
In the ensuing months, all Tripura can hope for is that the state and India becomes COVID free at the earliest. Its sources of revenue are tied up too closely to the fortunes of the central government. If the austerity plans succeed, the extra money could be used to hire additional doctors and nurses as well as create dedicated COVID wards and quarantine centres. However, a bigger revamp of health related spending is in order; more targeted spending on preventative health measures such as training and recruitment of ancillary medical staff, more effective nutrition programmes, and better communicable disease management. To do this, Tripura has to increase its own tax revenue. There’s only one way to do that — increase people’s incomes. For that, the government has to give away the unenviable title of the state’s single largest employer.
