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The government of Nagaland has appealed to the visiting team of the 16th Finance Commission, led by its chairperson Dr. Arvind Panagariya, for financial assistance, citing the deteriorating financial position of the state since the Centre discontinued Balance from Current Revenue (BCR) Gap funding during the Ninth Finance Commission. While mentioning the unique socio-political landscape and long history of armed conflict in the state, which also necessitated the need to provide livelihood to the youth through government jobs despite eating into the state’s exchequer, Chief Minister Neiphiu Rio expressed concern over the decreasing state’s share of the divisible tax pool due to rising non-shareable cesses and surcharges, as well as the rise in government spending to avail Centrally Sponsored Schemes. He sought Revenue Deficit Grants to cover committed expenditure, proposing more than INR 40,386 crore to address the infrastructure deficit as well as promote sustainable development. During the consultative meeting with legislators comprising the CM, Deputy CMs and other officials, the Finance Commission team was also apprised of the state’s spending on purchasing power and sought assistance for the newly elected urban local bodies and village councils. In short, it was all about the state’s fiscal challenges and specific needs, especially infrastructure. It exposed the state’s overdependence on the central government both for executive purposes and developmental activities. This calls for concerted efforts to narrow the fiscal gap by improving the state’s economic health.
Well, the 16th Finance Commission is expected to submit its recommendations on tax devolution, grants-in-aid and other funds for various states and union territories by October 2025. These recommendations will play a big role in determining the economic health of states, especially states like Nagaland that are heavily dependent on the Centre. Considering the fact that many states are caught in the vicious circle of fiscal deficit and lack of funds for developmental activities, this constitutional body should think of a bailout option. Adequate funds should be allocated to urban local bodies, which is crucial for addressing issues related to poor public amenities. Nagaland will expect special grants to power its newly set up ULBs- to construct offices, maintain pothole-riddled roads, provide sanitation, etc. Meanwhile, the state government should continue its efforts to boost revenue generation. As per the government report, the Gross State Domestic Product (GSDP) for the financial year 2023-24 saw an increase of 4.7% from the previous fiscal year 2022-23. This is a positive trend, but eliminating dependency on the Centre will take time. So, the government should come up with a bailout mechanism until the state is able to stand on its own two feet. And special focus should be on improving connectivity, infrastructure, healthcare and education.