Resource Constraints in the North Eastern States A Comparative Study of Meghalaya and Nagaland

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 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 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