RBI Lauds Odisha Govt for Its Superior Fiscal Management Practices

Bhubaneswar: The Reserve Bank of India lauded Chief Minister Naveen Patnai-led Odisha Government for its superior fiscal management practices.

It also advised other states to emulate practices being adopted in Odisha.

In its report State Finances-A Study of Budgets of 2020-21, RBI stated, “Given the lack of transparency with regard to states in reporting of some of these risks, efforts by Odisha in acknowledging, assessing and preparing in advance for such unforeseen risks could be worthy of emulation.”

“The Government of Odisha identified “Fiscal Risk Management” as one of the key reforms priority under technical assistance from the IMF’ South Asia Regional Training and Technical Assistance Center (SARTTAC) in 2019.”, the report further stated.

Odisha has a dedicated Fiscal Risk and Debt Management Cell in the Finance Department and a high-level Fiscal Risk Committee has been put in place.

The state has adopted a three-stage approach to fiscal risk management: (1) identification and measurement of fiscal risks; (2) fiscal risk reporting; and (3) mitigation and management of fiscal risk., RBI stated.

Under (1), all possible sources of fiscal risk were identified and the impact of each fiscal risk worked out as ratio of GSDP and classified as high, medium and low on the basis of the level and possibility of occurrence.

Some of the identified sources of fiscal risk include (a) macroeconomic performance, international commodities prices, and exchange rate risk, particularly for foreign currency loans; (b) natural disaster to which Odisha is prone; (c) composite debt risk measured through a debt index consisting of debt to GSDP ratio, per capita debt and cost of debt using the relative distance methodology; (d) overall fiscal risk measured through a fiscal performance index employing a multiple indicator approach; and (e) contingent liabilities risk from Guarantees, Public Private Partnerships (PPPs), and public sector undertakings (PSUs).

The state government also uses the IMF’s State-Owned Enterprise Health Check Tool to assess the financial health of the State PSUs. Such assessment of GRIDCO, a state-owned enterprise in power sector shows it a high risk company, RBI stated in its report.