The north eastern states of India have, of late, developed a `dependency syndrome'as is evident from an explosive cycle of public expenditure growth in most of the states of the regioncoupled with an increasing demand for grants-in-aid and other central assistance to bridge the gap of large budgetary deficits. The inadequacy in generating their own sources of revenue to meet the ever increasing public expenditure growth in these states has given rise to a volatile fiscal situation. Against this backdrop, this article studies the extent to which the revenue capacity of the tax system of these states has been realized; to assess the overall success of governmenal measures to increase revenue potentialities of the tax system; and the overall capacity of the north eastern states to raise the tax-income ratio over a period of time. By applying four indicators, viz., compound growth rate, marginal tax rates, elasticity and buoyancy coefficients to the north eastern region's tax structure, the article assesses the fiscal performances of these states with reference to the objectives. Based on the analysis of the fiscal capabilities of two representative states of the north eastern region, namely Nagaland and Meghalaya, the study concludes that taxation policy of these states, through both direct and indirect levies, has not been able to bring about any significant increase in the overall resource mobilization programs to meet its ever increasing public expenditure. As a result, the dependence of the states on the center is on the increase in the recent years.
Over a period of time, the North Eastern states have developed a ëdependency syndromeí
as it is evident from an explosive cycle of public expenditure growth in most of the States of the region, coupled with an increasing demand for grants-in-aid and other central
assistance to bridge the gap of large budgetary deficits. The inadequacy in generating their
own sources of revenue to meet the challenge of a volatile fiscal situation, which may be
attributed to a number of factors. They are : (i) The low level of economic activities coupled
with a low level of economic base, which may be considered as a product of low level of
infrastructural development , (ii) emergence of a parallel economy not only due to flourishing
trade of imported goods and commodities from the neighboring countries but also due to
the various fringe tax benefits of direct taxation particularly of Income tax and lastly, (iii)
due to the social unrest and political instability that these economies experience from time
to time. As a whole, the repercussion effects of all these forces at work have resulted in
various leakages, not only in tax generating capacity but also in narrowing down the tax
base of various taxes in the region. If we are to assign a cause-effect relationship to this type
of vexed problem then we can argue that the failures on the part of the State governments in
this region to mobilize adequate financial resources in order to carry out their various
developmental plan programs, has been mainly responsible for their low level of economic
activities, low level of economic base and their final culmination in the form of social unrest. |
