sickle_s.gif (30476 bytes) People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 02

January 13,2002

On Fiscal & Administrative ‘Reforms’ In Orissa

Santosh Das

THE government of Orissa recently signed a memorandum of understanding (MOU) with the central government in order to avail a structural adjustment loan of Rs 3,000 crore from the World Bank and an aid of Rs 200 crore from the Department of International Development (DID) of the UK government. This conditional loan is fraught with far-reaching consequences for our sovereignty, federal constitution, norms of parliamentary democracy, and the life and living of the people of Orissa.


This is the second time the government of Orissa signed an MOU with the union government on fiscal ‘reform.’ The earlier MOU, titled "Medium Term Fiscal Reform Programme" (MTFRP), was signed on April 15, 1999 when the state government was faced with a serious crisis in relation to its overdraft position. That MOU identified revenue deficit as the root of all evils and announced its intention to

  1. bring its down by downsizing the administration by 10 per cent in three to four years,
  2. freeze the grant in aid given to private educational institutions,
  3. increase tax revenue by introducing entry tax in lieu of octroi, imposing a professional tax, rationalising the sales tax, etc, by re-determining the user charges for various services like school, college and university fees, charges for water, health care, veterinary services, irrigation, and
  4. go in for a massive disinvestment and privatisation of state-run PSUs.

The Vajpayee government sought to get these anti-people policies implemented by the then Congress government of the state and let it face the anger of the people. But the premature dissolution of the Lok Sabha, followed by the midterm poll, the super cyclone and then the assembly elections, stood in the way of implementation of the "fiscal reforms" by March 2000, as was stipulated. Hence the Naveen Patnaik government had to translate that MOU into action.

The rapid implementation of the MTFRP could not solve the fiscal crisis of the state, that was an outcome of the fiscal mismanagement by successive governments as well as the wrong policies of the central government. That apart, the fiscal crisis cannot be seen in isolation from the capitalist path of development the ruling classes of India are pursuing in collaboration with the foreign finance capital while continuing the feudal mode of production in a modified from.


The state government’s argument in favour of the structural adjustment loan is that, in order to get out of the debt trap, it has to borrow from the World Bank at a lesser rate of interest to repay the costly loans. The debt burden had reached Rs 21,072.82 crore, 51 per cent of the gross state domestic product (GSDP) at the end of the fiscal 2000-2001, compared to the all-state average of 24.33 per cent. As calculated by the eleventh Finance Commission (FC), Orissa now has the highest debt-GSDP ratio among 14 major states. The interest payment in 2000-2001 was Rs 2,318 crore and the state’s debt is estimated to further rise to Rs 3,019.88 crore. The rate of interest for Rs 12,500 crore component out of the total loan is 12 to 14 per cent. The government argues that the low-interest loan from the World Bank at 8.5 per cent would help it repay the high interest loan and bring a change in the fiscal scenario. It thus hopes to brighten the state’s chances to avail assistance from the incentive fund as recommended by the eleventh FC. The state government claims that borrowing from the World Bank would give it a benefit of Rs 1300 crore, apart from the assistance of Rs 315 crore it hopes to get from the incentive fund.

The question is: Was there any alternative to taking a structural adjustment loan from the World Bank? It seems, there was. Of the total money owed by the state, Rs 9,208.84 crore are the government of India loan. The state had to incur this loan due to the faulty policies of the central government. It has lost revenue to the tune of hundreds of crores of rupees due to the central government’s refusal to revise the royalty on coal and other minerals for decades together. Since April 1974, there have been various phases when the coal royalty should have been revised but was not; the total period of such phases comes to nearly 20 years and 6 months. Due to the latest non-revision since October 1997, the state is losing Rs 150 crore a year. Similarly, the revision of royalty on other major minerals has been denied for at least 8 years since 1984. Neither the recommendation of the Sarkaria commission nor the understanding at the National Development Council made the centre do it. Even the eleventh FC’s recommendation in regard to such non-revision goes unimplemented. If the total such loss of tax revenue is taken into account and an interest of 12.5 per cent (the rate of interest on the loan component of non-statutory transfers from the centre to the states) is levied on it, the amount would certainly be much higher than Rs 3,000 crore which the state is to borrow from the World Bank.

In addition, the transfer of revenue from the centre to the state is on the decline. It has declined from 5.21 per cent under the award of the ninth FC to 4.78 per cent now. The policy of 30 per cent grant and 70 per cent loan (at 12.5 per cent interest), followed in case of the non-statutory transfer through the Planning Commission, only increases the debt burden. Hence it was correct on part of the state government to seek debt from the centre through its memorandum to the eleventh FC. It sought that the entire loan outstanding for more than 10 years should be written off as part of the short-term measure. This would have helped the state government to contain the revenue expenditure and avoid high cost borrowing.



Now, instead of waiving the loan, the central government has acquiesced with the World Bank imposing conditions on the state. These conditions that formed the content of the MOU signed between the centre and the state were suggested by the Adam Smith Institute and the Bannock --- the two consultancy agencies appointed by the DID. The DID that provides aid to schemes for poverty alleviation, primary education, primary health, women empowerment and slum area development, etc, in Commonwealth countries, has crossed the boundary of aid and assistance and encroached upon the internal affairs of two states in India. It claims that it provided an assistance of Rs 1,134 crore to Orissa and Andhra Pradesh for power sector ‘reform.’ It has a provision in its budget to give assistance to the tune of Rs 200 crore to Orissa to undertake the "fiscal and administrative reforms."

In collaboration with the World Bank, the DID has worked to ensure that the state government aggressively follows the policy of globalisation, liberalisation and privatisation in the name of "fiscal and administrative reforms." In line with the reports from the two consultancy agencies, the DID and World Bank tutored the state government and a mechanism was worked out to convert this vedeshi intellectual property into a ‘swadeshi’ one. Four task forces comprising top level bureaucrats were constituted to undertake studies and make recommendations on (i) budget reform and public expenditure management, (ii) revenue generation measures, (iii) education sector, (iv) public enterprise reform and restructuring. In May and September 2000, the Joint Technical Mission of the World Bank-DID visited Orissa twice to have discussions with departmental secretaries and the task forces, and prepared aide memories on the basis thereof. The reports of the task forces dittoed what the Adam Smith Institute and the Bannock prescribed and what the aide memories of the World Bank-DID Joint Technical Mission had further developed. After scrutiny by the steering committee headed by the chief secretary, as desired by the World Bank-DID, the structural adjustment programme obtained the cabinet sub-committee’s approval and was subsequently ratified by the council of ministers. Then, with a lot of fanfare, the state government organised a luxurious workshop in a five-star hotel in the last week of June 2001, amid the protest by Left parties and a section of NGOs. Then, in its bid to impose more burdens on the state, the NDA government delayed the matter. (The loan has to be routed through the centre.) Ultimately, the state had to accept the World Bank-DID conditions on the one hand and the central government’s on the other. This is but an encroachment on the country’s economic sovereignty and the state’s rights in a federal set-up.

The MOU asks the state government to downsize the civil administration by 20 per cent by 2004-05, continue the ban on creation of new posts, abolish the vacant posts, introduce an attractive voluntary retirement scheme, defer the leave encashment and LTC, and release the doses of DA strictly depending upon the ways and means position. This will make the government employees and the unemployed youth the worst losers.


Atrociously, the MOU has sought to repeal the existing laws so as to freeze the grant in aid provided to educational institutions. The state government has already adopted the policy of not giving grant in aid to any new institution. The process of amalgamation of institutions has started. The next step is to go back from the direct payment system and abolish a grant in aid post the moment the concerned teacher retires. Against the permanent post vacancies, para-teachers with a consolidated allowance of Rs 1500 a month are being appointed. The government is seeking to contractise the teachers’ job from the primary to the university level, and introduce a hire and fire system. It seeks to privatise and commercialise education in its bid to withdraw from this sector, threatening the closure of a large number of schools and colleges and making thousands of teachers jobless. This privatisation and commercialisation of education, coupled with the hikes in tuition fees, imposition of a development fee, etc, would deprive the students belonging to the low-income groups of their right to education.

Agriculture, the livelihood of 75 per cent population in the state, is sure to get ruined under this ‘fiscal reform.’ Recently, the cess on flow irrigation was hiked from Rs 100 to 250 per hectare for kharif crops and from Rs 215 to 430 per hectare for rabi crops. The cabinet is thinking of hiking the lift irrigation cess from Rs 871 to 1,122 per hectare for rabi crops. Already, Orissa has the highest lift irrigation charges in the country.

As per the MOU, the government wants to reduce the "explicit subsidy," so as to switch over from a welfare orientation to a cost recovery system. It has further decided to withdraw subsidy on seeds, seedlings, fertilisers and their transportation by 2004-05. These decisions will only reduce the use of chemical fertilisers and electricity in agriculture and increase the cost of agricultural production, thus making the Orissa peasantry unable to compete with the imported agricultural products. This will force them to go in for distress sales and ultimately ruin the agriculture. Peasants producing paddy, groundnut and other oils seeds are already facing a crisis.

Dairy, poultry, goat-rearing and pisciculture are going to be badly affected. The government has decided to withdraw the subsidy on fish seeds and introduce user charges on veterinary services. Orissa is already backward in all these areas and dependent on the neighbouring states.

The LPG policies have accelerated the process of deindustrialisation in Orissa, with the closure of major industries like the Talcher fertiliser plant, Orissa Textile Mill, Konark Jute Mill, Rupa Jute Mill, spinning mills, refractories, etc. The ferro alloys, ferro chrome and charge chrome units are in crisis. More than 80 per cent of small-scale industries have been closed. It will be recalled that it was the installation of public sector units, various incentives and concessions that had contributed to a modicum of industrialisation in Orissa. The withdrawal of these incentives and concessions, and the other impacts of liberalisation, will only push this process of deindustrialisation ahead.

The attitude of both the central and state governments towards the public sector undertakings (PSUs) is step-motherly. In its bid to kill our self-reliance, international finance capital seeks the complete privatisation of state-run units. The DID too insisted on public sector ‘reform’ in its policy paper. On the basis of the task force recommendations, the government has decided to go in for complete privatisation and massive disinvestment exercise. If these options fail, "liquidation" is said to be the last alternative. Workers are asked to avail of ‘voluntary’ retirement or face retrenchment.

At the official level, there is enough glorification of power sector ‘reform’ in Orissa. But in practice the unbundling of the erstwhile Orissa State Electricity Board (OSEB), followed by corporatisation and privatisation, has come as a curse for the people. The ‘reform’ has ensured annual tariff hikes, increase in transmission and distribution (T&D) losses, deterioration of consumer service, and chaos and anarchy created by the multinational companies and Indian corporate houses. Yet the MOU proclaims that "the state government promises to go ahead with the reform measures in the power sector and government of India agree to support the state in terms of financial and technical assistance."


These policies are destined to push the real income of the Orissa people down and increase the cost of living. The outcome would be an expansion of poverty, unemployment and starvation. The decline in the people’s purchasing power would shrink the domestic market, causing misfortune for the domestic industries and artisans. In its draft policy paper, the DID said poverty alleviation is the key to its strategy. The Indian experience proves that land reforms substantially reduced poverty in West Bengal --- a reality which even the World Bank had to admit. Then, why did the DID not suggest the government of Orissa to go in for a massive land reform exercise? This makes clear the difference between the people’s interest and the vested interests, the interests of the nation and those of imperialism.

The fiscal/administrative ‘reform’ also intends to weaken our parliamentary democratic system and the collective functioning of council of ministers. The mechanism proposed in the task force recommendations and approved by the cabinet is to constitute a "Public Enterprise Reform Commission" (PERC) to suggest measures and expedite implementation. A cabinet sub-committee (CSC) too is to be constituted under the chairmanship of the chief minister and comprising the finance, law and public enterprise ministers. The PERC recommendations are to be placed for the CSC approval. The role of the cabinet will thus be to ditto the recommendations of the CSC, and a recommendation gets automatically approved if not ratified within 30 days. This violates the collective functioning of the cabinet. The CSC thus becomes a super cabinet.

But if the agencies of foreign finance capital seek to weaken the cabinet and empower the bureaucracy, Naveen Patnaik’s style of functioning suits their game. After liberalisation became the official policy of the state, the DID is seeking to infiltrate downward to the level of panchayati raj and municipal bodies. In case it happens, the wheel would be put into back gear and reverse whatever decentralisation has taken place.



Except the CPI(M), CPI and other Left parties, no party has come forward to protest against the signing of the aforementioned MOU. But the good sign is that various sections of people are coming forward to protest against these policies. The Congress, the major opposition party, may try to utilise the mass discontentment arising out of these policies to its political and electoral advantage, but is not opposed to these polices. Other non-Left outfits have registered only piecemeal or symbolic opposition to the hike in irrigation tax and the like.

The CPI(M) has demanded scrapping these policies, execution of land reforms and other poverty alleviation measures, ensured procurement and effective functioning of the public distribution system, incentives and protection to industries (especially the small, cottage and agro-based units), stop to privatisation and disinvestment of the PSUs, stop to commercialisation of education and the like.

To enhance the revenue, the CPI(M) has laid emphasis on the non-tax revenue and demanded revision of royalties on coal and other minerals. It has asked the centre to compensate the state for the loss incurred due to the non-revision of royalties for years together and the earlier discriminatory freight equalisation policy. The loss can be assessed and an interest of 12.5 per cent levied on it. This amount would not be less than the government of India’s loan.

The CPI(M) wants the statutory devolution of tax revenue to be increased to 33.33 per cent of the gross receipt, and a rescheduling of the grant-loan ratio under non-statutory transfers to the states. It has demanded utilisation of a portion of the foreign exchange reserve for infrastructure development and of the foodgrain reserves for improving the rural infrastructure. It has demanded decentralisation of power, resources and planning, transparency and accountability, and the right to information along with stringent measures against corruption.

The state is virtually sure to witness stormy reactions after the fiscal and administrative ‘reforms’ operate in full swing. The organisations of middle class employees, workers, peasants, students, youth, women, teachers as well as some of the NGOs are vigorously striving to organise the masses on the platform of "Campaign Against Ruinous Economic Reforms." The Left parties too are also chalking out plans for campaign and agitation.

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