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E-Pao! Opinions - Genesis of the Financial Crisis in Manipur

Genesis of the Financial Crisis in Manipur: An Interpretation
E. Bijoy Kumar Singh
Associate Professor, Department of Economics, Manipur University



Manipur is also reeling under an acute financial crisis experiencing a situation akin to passing through an endless dark tunnel. In 2001-2002 RBI suspended payments of State Government for 329 days. The uncertainty in payment of salaries for government employees has become a regular feature accepted by all with resignation. The erratic disbursement of salaries of 80 thousand odd government employees has restricted the normal flow of transactions in the state economy jeopardizing the fate of marginal operators in the market. Though a small segment of the society has gained a lot, overall most of us are losers. The fluid political alignment also prevented our leaders from leading a frontal attack on the crisis. However the reality is that there is no consensus on the genesis of the crisis as is evident from the vacillation in public policy statements regularly made by our leaders. This lack of clarity has generated incomplete debate on many policy measures such as downsizing, restructuring of state level public enterprises, lifting of prohibition etc. The situation calls for a critical analysis of the genesis of the crisis. Only then such a debate will be meaningful and help us more in getting out of the situation.

In between 1950-51 and 2002-03 public expenditure has risen from Rs. 0.4 crores to Rs. 1,660 crores (B.E.). Since attaining statehood in 1972 the scope of government activities has expanded enormously. The government has rightly undertaken the responsibility of catching up with the exponentially growing public expectations in every field. In the meantime as part of new economic policy reforms the role of the government changed from being a provider of public services to being a facilitator of private investment. The demand for transparency, accountability and efficiency of public money exposed the vulnerability of sub-national economics including that of Manipur. Had there been no economic reforms, the extent and timing of the crisis could have been quite different. It is not surprising that under the new dispensation 9 (nine) states i.e. Punjab, Uttar Pradesh, Rajasthan, Himachal Pradesh, Manipur, Nagaland, Mizoram, Orissa and Sikkim had to enter into an agreement with the Centre to get assistance under the Fiscal Reform Programmes for the States initiated in April 1999. Even states with no financial crisis recognized the need for prudent fiscal management. As part of the fiscal consolidation theme in the structural adjustment programmes the gross fiscal deficit of the centre and states together as a percentage of GDP would be reduced from about 7.7 percent in 1993-94 to around 5 percent in 1996-97. At least one percentage point reduction would be on account of the state governments. In short, the current crisis has an element of inevitability in the context of major policy reversals.

The element of inevitability in the case of Manipur can be seen on a bigger canvas. The conventional measures of resource mobilization never generated resources anywhere near the level required for plan and non-plan purposes. The lack of buoyancy in these measures is to be partly attributed to the backwardness of the economy. Despite nearly 50 years of planning the state continues to be one of the economically most backward states in the country. It lags far behind in infrastructural development such as irrigation, communication and power generation. Agriculture, the mainstay of the economy continues to be a gamble in the monsoon. There is no industry worth the name and it has not been growing in the post-reform phase. The point of liberalization is associated with higher growth rate in only trade, hotels & restaurant sub-sector of the economy. The growth in this sub-sector co-existing with stagnant or declining manufacturing sector may be interpreted as de-industrialization due to trade. The fledgling industries in Manipur cannot match the quality of mainland products and price competitiveness of smuggled items via Myanmar. Local entrepreneurs may be handicapped by the economics of sustainable production at competitive price. The fast growth in trade etc. will further strengthen the growth of the services sector. However, the growth in the various sub-sectors of this sector is not found to be associated with growth in commodity production. The existing backwardness is associated with inadequately of the plans which still need substantial rethinking at the institutional and operative level. We have persistently failed to incorporate a realistic vision of the economy in our plans. Critical evaluation of plans is ruled out due to the fuzziness in vision in terms of targets. As a result bad investment kept on accumulating. The growing social acceptance of corruption as a way of life also accentuated the problem. Throughout plans loans taken by the state government have been accumulating without yielding any commensurate returns. The state government also gave loans and advances with insignificant returns. The fact that so many as 14,000 employees have been declared surplus indicates that consideration other than production of goods of services had dictated their appointment. As part of the development process committed expenditure in the form of interest payment, salaries and pensions has been rising. Economic development and associated social changes led to inexorable rise in public expenditure to meaningfully bridge the growing expectation gap. In 2002-03 (BE) salaries (Rs. 654.8 crores), Pensions (Rs. 179.3 crores), interest (Rs. 186.4 crores) and Principal payment (Rs. 48.2 crores) accounted for 64 per cent of total expenditure.

Currently 65 percent of gross fiscal deficit is interest payment. Our area of operation will thus be confined to the primary deficit which stand at Rs. 101.30 crores. The policy proposals advanced so far consist of the following:
(i) Compress revenue expenditure
(ii) Enhance revenue and non-debt capital receipts to control debt levels.
(iii) Improve recycling of funds
(iv) Increase overall transparency and efficiency in governance.
Downsizing of government departments, lifting of prohibition, revision of land revenue, hill house tax, restructuring of state level public enterprises are some of the measures widely discussed in the state. Among them, lifting of prohibition had met with condemnation from every quarter. Our current crisis is the manifestation of a series of shortcoming that has been accumulating over successive five year plans. Equally important is people's attitude to public expenditure. There is no magic remedy to the crisis. Resource mobilization and reprioritization of expenditure should go hand in hand. It is like treating a very sick person whose immune system has completely collapsed. The immediate task is to control the downslide. Once it is done, one can afford the luxury of normative value based policy stances. There is no permanent economic policy. It keeps on changing. If lifting of prohibition and introduction of online lotteries add annually around Rs. 80-90 crores at this juncture when almost every other measure has failed to deliver, they deserve proper and complete attention. Many other states have scrapped prohibition. There is no guarantee that prohibition will invariably bring about qualitative improvement in our standard of living. So is the case with lifting of prohibition. However, the extra amount will create room for maneuver. Our profession tends to think in terms of the best alternative. Downsizing the cabinet size, eliminating corruption and plugging leakages in public expenditure are easier said than done. They definitely are not fire fighting measures. The argument is - if problems associated with alcohol consumptions have remained as before inspite of prohibition, the advantage may as well be enjoyed by lifting prohibition.

In conclusion, our problem is the manifestation of shortcoming accumulated over time and no magic remedy exists. The government and the public both have important roles. Rights co-exist meaningfully only with duty. One should have a holistic perspective of the issues involved. While the government takes the leading role, the public should ensure its enforcement. When the economy prospers along with the private sector, the string of policy reforms may not be as painful as it is today. Rs. 10 crores per annum and 20 Ambanis will make a huge difference.


* (Paper presented in the Seminar on Lifting of Prohibition and Economic Crisis in Manipur on 11th & 12th October, 2002 at G.M. Hall, Imphal.)


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